DAX Set for a Bullish Open on the Shift in Sentiment Toward the Fed

Highlights

• It was a bullish Wednesday for the DAX, gaining 1.47% to end the day at 16,023.
• Hopes for a stimulus package from Beijing and the US CPI Report delivered a breakout session.
• However, it is another testy day ahead, with China trade data, Eurozone industrial production, and ECB monetary policy meeting minutes to move the dial.

It was a bullish Wednesday session for the DAX, which gained 1.47%. Following a 0.75% rise on Tuesday, the DAX ended the day at 16,023. Significantly, the DAX wrapped up the day at 16,000 for the first time in six sessions.

A quiet European economic calendar left hopes of a stimulus package from Beijing to provide early support. However, the US CPI Report and easing bets on a September Fed interest rate hike fueled a bullish afternoon session.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 94.2% versus 93.0% on Tuesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 13.2%, down from 22.3% on Tuesday.

The NASDAQ Composite Index responded to the US CPI Report, gaining 1.15%, with the Dow and the S&P 500 rising by 0.25% and 0.74%, respectively.

US CPI Report Delivers a DAX Return to 16,000

It was a quiet day on the European economic calendar. There were no economic indicators from Germany or the euro area to move the dial.

The lack of European economic indicators left the US CPI Report to move the markets.

In June, the US annual inflation rate cooled from 4.0% to 3.0% versus a forecasted 3.1%. Consumer prices increased by 0.2% in June versus a forecasted 0.3%. However, core inflation remained sticky. The annual core inflation rate softened from 5.3% to 4.8% versus a forecasted 5.0%.

The Market Movers

It was a bullish session for the auto sector. Porsche and Continental AG rose by 1.25% and 1.22%, respectively. BMW and Volkswagen also found support, gaining 0.86% and 0.67%, respectively. Mercedes-Benz Group trailed the front runners with a 0.32% gain.

It was a mixed session for the banks. Commerzbank ended the day up by 0.28%, while Deutsche Bank fell 0.36%. US bank earnings are in focus this week. Investors expect higher interest rates to deliver a pickup in bank earnings.

The Day Ahead for the DAX

China trade data set the tone this morning. Another gloomy set of trade numbers will test buyer appetite early in the European session.

The China USD trade surplus widened from $65.81 billion to $70.62 billion in June. However, the trade surplus widened because of a slide in imports. Exports fell by 6.8%, year-over-year, versus 4.5% in May, while imports tumbled by 12.4% versus 7.5% in May. Economists forecast exports to fall by 4% and imports by 9.5%.

It is a quiet day on the European economic calendar. Finalized inflation numbers from France should not influence the DAX, barring a marked revision to prelim numbers.

However, Eurozone industrial production numbers will draw interest later in the session. Economists forecast production to increase by 0.3% versus a 1% rise in April.

The ECB will also be in the spotlight today, with the ECB monetary policy meeting minutes likely to draw interest. With the markets expecting the Fed to hit the brakes after the summer, hawkish ECB bets could see a sharp increase in the EUR/USD that would test the appetite for the DAX.

It is a busy day on the US economic calendar. US wholesale inflation figures for June and the weekly jobless claims will draw interest. A pickup in wholesale inflation and an unexpected fall in jobless claims could leave the markets to grapple with uncertainty toward a September move.

While the economic indicators will move the dial, investors should also track FOMC member chatter throughout the day.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day (15,895) and 200-day (15,829) EMAs, signaling bullish momentum over the near and longer term. Significantly, the 50-day EMA pulled away from the 200-day EMA, sending bullish signals and bringing the upper level of the 16,000 – 16,080 resistance band into view.

A DAX hold above the lower level of the 16,000 – 16,080 resistance band would support a run at the July high of 16,209 into play. However, central bank chatter and the US PPI Report should support a bullish session.

A fall through the lower level of the 16,000 – 16,080 resistance band would bring 50-day EMA (15,892) into view.

The 14-4H RSI sits at 53.40, sending moderately bullish signals and supporting a move through the upper level of the 16,000 – 16,080 resistance band to target 16,200.

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