Advertisement
Advertisement

DAX Set for a Bearish Open as Investors Focus on Debt Ceiling Talks

By:
Bob Mason
Updated: May 24, 2023, 06:22 UTC

German business sentiment figures and ECB chatter will provide early direction to the DAX. However, US debt ceiling talks remain the focal point.

DAX tech and fundamental analysis - FX Empire

It was a bearish Tuesday for the DAX. The DAX fell by 0.44%. Following a 0.32% loss on Monday, the DAX ended the day at 16,153. Despite the bearish session, the DAX held onto the 16,000 handle for the fourth consecutive session.

Disappointing private sector PMI numbers for the euro area weighed on investor sentiment early in the European session.

However, investors brushed aside better-than-expected US service sector PMI numbers, with a failure to reach a US debt ceiling agreement sending riskier assets into negative territory.

As the deadline to raise the debt ceiling nears, the threat of a US default will weigh more heavily on riskier assets. There is lingering hope that the two sides of the aisle will put aside their differences to reach an agreement at the eleventh hour. However, there is unlikely to be any rebound without progress towards a deal.

On Tuesday, the NASDAQ Composite Index and the S&P 500 saw losses of 1.26% and 1.12%, respectively, with the Dow falling by 0.69%.

Euro Area Private Sector Hits a Speed Bump

Euro area prelim private sector PMIs for May were disappointing on Tuesday. The French manufacturing PMI rose from 45.6 to 46.1, while the services PMI declined from 54.6 to 52.8.

Notably, the German manufacturing PMI fell from 44.5 to 42.9, while the services PMI increased from 56.0 to 57.8.

As a result, the Eurozone manufacturing PMI slipped from 45.8 to 44.6, with the services PMI down from 56.2 to 55.9. Economists forecast PMIs of 46.2 and 55.6, respectively.

For the ECB:

  • Wage growth across the services sector accelerated at the second-fastest pace in over one year. Job growth across the services sector was the second strongest over the past year.
  • While inflationary pressures eased, prices charged across the services sector accelerated.

US private sector PMI numbers delivered mixed signals. The manufacturing PMI fell from 50.2 to 48.5, while the all-important services PMI increased from 53.4 to 54.5. Economists forecast both PMIs to decline to 50.0.

The better-than-expected services PMI delivered brief support before a late pullback as investors considered the debt ceiling impasse.

The Market Movers

It was a mixed day for the auto sector. Porsche led the way, gaining 1.68%, with BMW and Volkswagen rising by 0.42% and 0.53%, respectively. However, Mercedes-Benz Group and Continental ended the day down by 0.20% and 0.27%, respectively.

It was also a mixed session for the banks. Commerzbank fell by 0.46%, while Deutsche Bank gained 1.00%.

The Day Ahead for the DAX

It is a relatively busy day on the European economic calendar. The German economy is back in the spotlight, with the German Ifo Business Climate Index in focus.

According to the German prelim Composite PMI for May, business expectations weakened in May, weighed by a fall in confidence across the manufacturing sector. A weaker Ifo Business Climate Index and components would be a bearish scenario for the DAX.

Economists forecast the Business Climate Index to slip from 93.6 to 93.0.

With the German economy in the spotlight, investors should monitor ECB commentary. ECB President Christine Lagarde is on the calendar to speak today.

Looking ahead to the US session, it is a quiet day on the US economic calendar. There are no US economic indicators for investors to influence, leaving Fed chatter, US debt ceiling-related news, and US Treasury Secretary Janet Yellen in focus.

DAX Technical Indicators

Resistance & Support Levels

R1 16,203 S1 16,123
R2 16,254 S2 16,094
R3 16,334 S3 16,014

The DAX has to move through the 16,174 pivot to target the First Major Resistance Level (R1) at 16,203 and the Tuesday high of 16,224. A return to 16,200 would send a bullish signal. However, the DAX would need the business sentiment numbers and debt ceiling talks to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,254. The Third Major Resistance Level (R3) sits at 16,334.

Failure to move through the pivot would leave the First Major Support Level (S1) at 16,123 in play. However, barring a risk-off-fueled sell-off, the DAX should avoid sub-16,050. The Second Major Support Level (S2) at 16,094 should limit the downside. The Third Major Support Level (S3) sits at 16,014.

DAX support levels in play below the pivot.
DAX 240523 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,993). 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 (15,993) would support a breakout from R1 (16,203) to give the bulls a run at R2 (16,254) and 16,300. However, a fall through S1 (16,123) would bring S2 (16,094) into view. A fall through S3 (16,014) and the 50-day EMA (15,993) would signal a near-term bullish trend reversal.

EMAs are bullish.
DAX 240523 4 Hourly Chart

The DAX Futures Sees Red

Looking at the futures markets, DAX was down 76 points, while the NASDAQ and Dow were up by 15.5 and 36.0 points, respectively.

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

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

Did you find this article useful?

Advertisement