DAX Set for a Bullish Open on Corporate Earnings Pre Fed

Highlights

• It was a bullish Tuesday for the DAX, gaining 0.13% to end the day at 16,212.
• Gloomy business sentiment figures failed to spook investors, with US economic indicators and Politburo pledges delivering support.
• However, it is a quieter Wednesday session, with no euro area stats to distract investors from the Fed.

It was a bullish Tuesday for the DAX, which gained by 0.13%. Following a 0.08% gain on Monday, the DAX ended the day at 16,212. Significantly, the DAX avoided sub-16,000 for a sixth consecutive day.

Economic indicators from the euro area delivered a short-lived pullback, with German business sentiment waning. However, Politburo pledges and US economic indicators delivered a bullish session.

Late in the European session, the US equity markets provided support. Despite the Fed interest rate decision looming, the NASDAQ Composite Index gained by 0.61%, with the Dow and S&P 500 rising by 0.08% and 0.28%, respectively.

The jump in consumer confidence, bets on the Fed ending its monetary policy tightening cycle, and corporate earnings provided support.

US Consumer Confidence Stuns

German business sentiment numbers for July drew early interest. The German Ifo Business Climate Index fell from 88.6 to 87.3 in July. Economists forecast a decline to 88.0. In July, the business expectations sub-Index fell from 83.8 to 83.5, with the current assessment sub-Index falling from 93.7 to 91.3.

While the headline number was bearish, a less pessimistic-than-expected outlook limited the damage.

However, US economic indicators were upbeat, supporting the divergence between the respective economies. The CB Consumer Confidence Index jumped from 110.1 to 117.0 in July, signaling a pickup in consumption and service sector activity.

The Market Movers

It was a bearish session for the auto sector. Continental AG fell by 0.57%, with Porsche ending the day down 0.29%. Mercedes-Benz Group and Volkswagen saw losses of 0.25%, with BMW declining by 0.17%.

It was a mixed session for the banks. Commerzbank fell by 1.25%, while Deutsche Bank gained 1.30% on buyback news.

Adidas led the way, rallying 3.83% as investors responded further to the Yeezy shoe orders delivering better-than-expected earnings.

The Day Ahead for the DAX

It is a quiet day ahead for the DAX. There are no euro area economic indicators for investors to consider. However, better-than-expected Alphabet Inc. (GOOGL) and Microsoft (MSFT) earnings should deliver early support.

Later in the session, US housing sector data should have a muted impact on the DAX, with the Fed interest rate decision and press conference in focus. While the markets are betting on a 25-basis point Fed rate hike, Fed Chair Powell could deliver a curve ball. A hawkish policy outlook would hit riskier assets.

However, beyond the economic calendar, corporate earnings will also need consideration.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day (16,065) and 200-day (15,903) 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 price signals and supporting a run at the 16,310 – 16,360 resistance band.

A DAX move through the July high of 16,241 would bring the 16,310 – 16,360 resistance band into play. However, corporate earnings 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 the 50-day EMA (16,065) and sub-16,000 into view.

The 14-4H RSI sits at 63.69, sending bullish signals. Significantly, the RSI aligns with the EMAs, supporting a breakout from the July high (16,241) to target the 16,310 – 16,360 resistance band.

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