DAX Set for a Bearish Open with German Producer Prices in Focus

Highlights

• It was a bearish Wednesday for the DAX, falling 0.10% to end the day at 16,109.
• Eurozone core inflation numbers caught investors by surprise, while investors brushed aside housing sector data from the US, with corporate earnings in focus.
• It is a relatively busy Thursday, with the PBoC and German wholesale inflation numbers in focus ahead of the US session.

It was a bearish Wednesday session for the DAX, which fell by 0.10%. Following a 0.35% gain on Tuesday, the DAX ended the day at 16,109. Significantly, the DAX avoided sub-16,000 for the second consecutive session.

Euro area inflation numbers for June tested buyer appetite early in the European session. However, hotter-than-expected core inflation figures are unlikely to shift sentiment toward ECB monetary policy, with sticky core inflation supporting further tightening after the summer break.

In the US session, housing sector numbers for June failed to move the dial, with corporate earnings in the spotlight. Tesla (TSLA), Netflix (NFLX), and Goldman Sachs (GS) were among the big names releasing results on Wednesday.

The US equity markets responded to the earnings results and US soft-landing bets. The NASDAQ Composite Index gained 0.03%, with the Dow and the S&P 500 rising by 0.31% and 0.24%, respectively.

Eurozone Inflation Came in Hotter than Expected

It was a relatively busy day on the European economic calendar, with finalized Eurozone inflation numbers for June in focus. Core inflation was hotter than expected, supporting the hawkish ECB monetary policy outlook.

The annual core inflation rate accelerated from 5.3% to 5.5% in June versus a prelim 5.4%. However, headline inflation softened from 6.1% to 5.5%, in line with prelim numbers.

While Eurozone inflation numbers were a drag, investors brushed aside US housing sector data, with corporate earnings taking center stage.

The Market Movers

It was a mixed session for the auto sector. Continental AG rose by 1.13%, with Porsche and Volkswagen seeing gains of 0.60% and 0.85%, respectively. BMW also found support, gaining 0.09%, while Mercedes-Benz Group fell by 0.80%.

It was also a mixed session for the banks. Commerzbank declined by 0.49%, while Deutsche Bank ended the day up 1.58%. Deutsche Bank and the auto sector front runners were among the best-performing stocks on the DAX. However, Vonovia led the way, rallying 6.88% on Deutsche Bank ‘Buy’ recommendations.

The Day Ahead for the DAX

It is a relatively busy day ahead for the DAX. German producer price index numbers for June will draw interest early in the European session. Investor sensitivity to the producer price index has intensified because of the weak demand environment. Another sharp fall would be bearish.

Economists forecast the producer price index to fall by 0.4% in June, following a 1.4% slide in May.

It is a busier day on the US economic calendar, with the US jobless claims and Philly Fed Manufacturing Index numbers in focus. Upbeat numbers would support the theory of a soft landing.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day (15,990) and 200-day (15,867) EMAs, signaling bullish momentum over the near and longer term.

Significantly, the 50-day EMA pulled further away from the 200-day EMA, sending bullish signals and supporting a run at the 16,310 – 16,360 resistance band.

A DAX move through the July high of 16,209 would bring the 16,310 – 16,360 resistance band into play. However, economic indicators must be DAX-friendly to support a bullish session.

A fall through the upper level of the 16,080 – 16,000 support band would bring sub-16,000 and the 50-day EMA (15,990) into view.

The 14-4H RSI sits at 59.26, sending bullish signals. Significantly, the RSI aligns with the EMAs, supporting a breakout from the July high (16,209) to target the 16,310 – 16,360 resistance band.

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