DAX Set for a Bearish Open as Fed Fear Resurfaces

It was a bearish Wednesday session for the DAX. The DAX fell by 0.20%. Reversing a 0.20% gain from Tuesday, the DAX ended the day at 15,961. Despite the bearish session, the DAX revisited the 16,000 handle for the fourth consecutive session.

Disappointing trade data from China set the tone ahead of the European opening bell. China’s USD trade surplus narrowed from $90.21 billion to $65.81 billion in May versus a forecasted $71.60 billion. Significantly, exports tumbled by 7.5% year-over-year, with imports down by 4.5%. Economists forecast exports to rise by 8.0% and imports to fall by 8.0%.

Economic indicators from Germany and the US also failed to impress, leaving the DAX in negative territory.

Economic Indicators Disappoint

It was a relatively busy day on the European economic calendar. The German economy was in the spotlight, with industrial production numbers in focus early in the session.

Industrial production increased by 0.3% in April versus a forecasted 0.6% increase. In March, industrial production unexpectedly fell by a revised 2.1%. The latest industrial production figures followed factory orders from Tuesday, which continued to flash red.

With the German economy in a technical recession and Germany’s manufacturing PMI falling from 44.5 to 43.2 in May, the outlook is grim.

US economic indicators also failed to provide support. The US trade deficit widened from $60.60 billion to $74.60 billion in April versus a forecasted $75.20 billion deficit. While imports increased, exports declined in April, leading the US trade deficit to a six-month high.

There was no reaction from the Fed, with the FOMC in the pre-FOMC meeting blackout period.

However, a surprise Bank of Canada rate hike and the impact of the stronger dollar on trade raised bets on a June Fed rate hike. According to the CME FedWatch Tool, the probability of a 25-basis point June interest rate hike increased from 21.8% to 33.8% versus 26.4% one week earlier.

The Market Movers

It was a bullish day for the auto sector. Continental and Mercedes-Benz Group led the way, with gains of 0.99% and 0.61%, respectively, with Volkswagen up 0.24%. Porsche and BMW ended the day up 0.18% and 0.17%, respectively.

It was also a bullish session for the banks. Commerzbank and Deutsche Bank ended the day with gains of 2.16% and 1.29%, respectively.

The Day Ahead for the DAX

It is a busy day on the European economic calendar. While there are no German economic indicators to consider, second estimate GDP numbers for the Eurozone will move the dial.

According to first estimates, the Eurozone economy stalled in Q1 versus 0.1% growth in Q4. Downward revisions would question the ECB’s hawkish monetary policy goals.

With the Eurozone economy in the spotlight, investors should monitor central bank chatter throughout the session. No ECB members are on the calendar to speak today, leaving commentary with the media to influence.

However, it is another quiet day on the US economic calendar. US initial jobless claims will draw interest early in the session.

With hiring continuing to impress, a sharp increase in jobless claims would support a more dovish Fed pause in June. However, economists forecast jobless claims to increase from 232k to 235k.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to move through the 15,964 pivot to target the First Major Resistance Level (R1) at 16,017 and the Wednesday high of 16,020. A return to 16,000 would send a bullish signal. However, the DAX would need economic indicators and central bank chatter to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,074 and resistance at 16,100. The Third Major Resistance Level (R3) sits at 16,184.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,907 in play. However, barring a risk-off-fueled sell-off, the DAX should avoid sub-15,850. The Second Major Support Level (S2) at 15,854 should limit the downside. The Third Major Support Level (S3) sits at 15,744.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day EMA (15,947). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA (15,947) would support a breakout from R1 (16,017) to give the bulls a run at R2 (16,074) and 16,100. However, a fall through the 50-day EMA (15,947) and S1 (15,907) would bring the 100-day EMA (15,882) and S2 (15,854) into view. A fall through the 50-day EMA would send a bearish signal.

The DAX Futures Sees Red

Eying the futures markets, DAX and the Dow were down 57 and 52 points, respectively. The NASDAQ was down 46.25 points.

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