DAX Set for a Bullish Open on Easing Fed Rate Hike Jitters
It was a bullish Thursday session for the DAX. The DAX gained 0.18%. Partially reversing a 0.20% loss from Wednesday, the DAX ended the day at 15,990. Despite the bullish session, the DAX failed to hold onto the 16,000 handle for the fourth consecutive session.
Disappointing economic indicators for the euro area weighed on investor sentiment. While the ECB continues to signal further interest rate hikes to tame inflation, the eurozone economy contracted in Q1, suggesting more pain on the horizon.
However, easing bets of a June Fed interest rate hike provided support.
Euro Area Stats Fuel the Recession Jitters
Eurozone GDP numbers drew interest on Thursday. Revisions to the first estimates were bearish. In Q1, the eurozone economy contracted by 0.1% versus a stall, according to the first estimate. The Eurozone economy grew by 1.0% year-over-year, down from 1.2% (First Estimate) and 1.8% in Q4
However, US economic indicators provided DAX support.
US jobless claims numbers from Thursday eased bets on a June Fed interest rate hike, driving demand for riskier assets. US initial jobless claims increased from 233k to 261k. There was increased sensitivity to the latest claims figures following the unexpected rise in US unemployment.
The Market Movers
It was a bullish day for the auto sector. Continental and Volkswagen led the way, with gains of 1.93% and 1.14%, respectively, with BMW up 1.01%. Porsche and Mercedes-Benz Group ended the day up 0.83% and 0.73%, respectively.
It was also a bullish session for the banks. Commerzbank and Deutsche Bank ended the day with gains of 0.57% and 0.52%, respectively.
The Day Ahead for the DAX
It is a quieter day on the European economic calendar. Italian industrial production figures for April will draw interest this morning. Following the weaker-than-expected numbers from Germany, an unexpected fall in production would test buyer appetite.
With the Italian economy in the spotlight, investors should monitor central bank commentary throughout the session. ECB Executive Board members Luis de Guindos and Andrea Enria are on the calendar to speak today. Dovish comments would have more impact on the DAX.
However, there are no US economic indicators to draw interest later today. The lack of stats will leave investor sentiment toward the economic outlook and central bank monetary policy goals to influence.
No FOMC members are speaking today. The Fed entered the blackout period that ends on June 15.
DAX Technical Indicators
Resistance & Support Levels
The DAX has to avoid the 15,974 pivot to target the First Major Resistance Level (R1) at 16,035. A move through the Thursday high of 16,019 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 16,079 and resistance at 16,100. The Third Major Resistance Level (R3) sits at 16,184.
A fall through the pivot would bring the First Major Support Level (S1) at 15,930 into play. However, barring a risk-off-fueled sell-off, the DAX should avoid sub-15,850. The Second Major Support Level (S2) at 15,869 should limit the downside. The Third Major Support Level (S3) sits at 15,764.
Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day EMA (15,952). 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 (15,952) would support a breakout from R1 (16,035) to give the bulls a run at R2 (16,079) and 16,100. However, a fall through the 50-day EMA (15,952) and S1 (15,930) would bring the 100-day EMA (15,888) and S2 (15,869) into view. A fall through the 50-day EMA would send a bearish signal.
The DAX Futures Sees Green
Across the futures markets, DAX was up 16 points, while the Dow and NASDAQ were down 45 and 6 points, respectively.
Earlier today, inflation numbers from China set the tone. The annual inflation rate rose from 0.1% to 0.2% in May versus a forecasted 0.4%. Inflation remained soft, with consumer prices falling by 0.2%. In April, consumer prices declined by 0.1%.
However, the Producer Price Index garnered more interest, falling by 4.6% year-over-year versus 3.6% in April. Economists forecast the Producer Price Index to decline by a more modest 2.8%.
For a look at the economic events, check out our economic calendar.