DAX Index Forecast: Faces Stern Test as Hawkish Fed Bets Surge on US Jobs Report

It was a bullish Thursday session. The DAX rose by 0.50% to end the day at 15,598.

Industrial production figures from Germany provided support. However, US economic indicators provided late support, with a fall in US initial jobless claims easing fears of a marked deterioration in labor market conditions.

However, the upside was modest ahead of the US Jobs Report on Friday and uncertainty toward Fed monetary policy.

On Thursday, the NASDAQ Composite Index and the S&P 500 rose by 0.76% and 0.36%, respectively. The Dow Jones ended the day up 0.01%.

German Economic Indicators Support ECB Rate Hike

On Thursday, German factory orders drew interest. Following the sharp increase in factory orders, investors needed a bullish number to ease recessionary fears.

German industrial production increased by 2.0% in February versus a forecasted 0.1% rise. In January, industrial production jumped by 3.7%.

According to Destatis,

• Production in industry excluding energy and construction rose by 2.4% month-on-month.
• The production of capital goods rose by 3.4%, with the production of intermediate goods up by 1.8%. Consumer goods production increased by 1.4%.
• Energy production fell by 1.1%.
• Total production of motor vehicles and parts surged by 7.6%.
• Year-over-year, production increased by 0.6%.

From the US, initial jobless claims fell from 246k to 228k. However, there was an upward revision to the previous week from 198k to 228k.

On Friday, the US Jobs Report fueled bets of a 25-basis point Fed interest rate hike in May.

Nonfarm payrolls increased by 236k v a forecasted 239k, with average hourly earnings up 4.2% year-over-year versus 4.6% in February. However, the US unemployment rate fell from 3.6% to 3.5% despite a rise in the participation rate from 62.5% to 62.6%.

The numbers supported a more hawkish Fed and raised the prospects of a May interest rate hike.

According to the CEM FedWatch Tool, the probability of a 25-basis point interest rate hike jumped from 49.2% to 67.0%.

The German markets were closed for Good Friday, leaving investors to respond to the Jobs Report and shift in Fed sentiment today.

The Market Movers

It was a mixed Thursday for the auto sector. Volkswagen fell by 0.50%, with BMW and Daimler seeing losses of 0.47% and 0.89%, respectively. Continental and Porsche bucked the trend, rising by 0.89% and 0.12%, respectively.

It was a bullish session for the banks. Commerzbank and Deutsche Bank ended the day with gains of 2.25% and 1.68%, respectively.

The Day Ahead for the DAX

It is a quieter day ahead on the economic calendar. Euro area retail sales figures for February will be in focus. Economists forecast a 0.8% decline. While we expect the DAX to respond to the numbers, the US Jobs Report will likely have more influence.

There are no US economic indicators to draw interest late in the session, leaving Fed chatter to provide direction.

DAX Technical Indicators

The DAX has to avoid the 15,570 pivot to target the First Major Resistance Level (R1) at 15,630. A move through the Thursday high of $15,602 would send a bullish signal. However, the DAX would need euro area stats and central bank commentary to support a bullish session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $15,663. The Third Major Resistance Level (R3) sits at 15,756.

A fall through the pivot would bring the First Major Support Level (S1) at 15,537 into play. However, barring a flight to safety, the DAX should avoid sub-$15,400. The Second Major Support Level (S2) at 15,477 should limit the downside. The Third Major Support Level (S3) sits at 15,384.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,385). The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the Major Support Levels and the 50-day EMA (15,385) would support a breakout from R1 (15,630) to give the bulls a run at R2 (15,663). However, a risk-off event would deliver a fall through S1 (15,537) to bring S2 (15,477) into play. A fall through the 50-day (15,385) would signal a near-term bullish trend reversal.

The DAX Futures Sees Green

Looking at the futures markets, DAX was down 110 points, with the Dow mini up by 40. The NASDAQ mini was down by 3.75 points.

For a look at the economic events, check out our economic calendar.