DAX Set for a Bullish Open with Business Sentiment and ECB in Focus

Highlights

• The DAX tumbled by 3.23% last week, with hawkish central banks and economic indicators weighing.
• ECB President Christine Lagarde has to deliver a more dovish speech today to ease pressure on the DAX.
• Germany’s Ifo Business Climate Index will also move the dial, with economists forecasting a deterioration in business sentiment.

It was a bearish end to a bearish week for the DAX, falling 0.99%. Following a 0.22% loss on Thursday, the DAX ended the week down 3.23% to 15,830. Significantly, the DAX saw red for five consecutive sessions.

Investors failed to shake off the negative sentiment toward central bank monetary policy and the economic outlook. Hawkish Fed Chair Powell testimony and a surprise Bank of England 50-basis point interest rate hike sent warning signals to investors hoping for central banks to end their respective monetary policy tightening cycles amidst a deteriorating global economic outlook.

Economic indicators from the euro area and the US added to the bearish mood. Prelim private sector PMIs for June showed a deeper contraction across the manufacturing sector and slower growth across the services sector.

Private Sector PMIs Flash Red

It was a busy end to the week on the European economic calendar. Prelim private sector PMIs for France, Germany, and the Eurozone provided direction.

According to prelim numbers, the German manufacturing PMI fell from 43.2 to 41.0, with the French manufacturing PMI down from 45.7 to 45.5. As a result, the Eurozone manufacturing PMI fell from 44.8 to 43.6, the lowest in 37 months.

A marked slowdown in service sector activity will also concern the ECB, with the Eurozone services PMI down from 55.1 to 52.4.

Later in the day, US private sector PMI numbers showed a similar trend. The all-important Services PMI declined from 54.9 to 54.1, while the manufacturing PMI slid from 48.4 to 46.3.

The Market Movers

It was a bearish Friday session for the auto sector. Continental AG and Porsche saw losses of 1.36% and 0.99%, respectively. Porsche and Volkswagen fell by 0.99% and 0.52%, respectively. Mercedes-Benz Group and BMW both ending the day down 0.44%.

It was also a bearish session for the banks. Commerzbank slid by 5.92%, with Deutsche Bank falling by 1.45%.

The Day Ahead for the DAX

It is a relatively quiet start to the week. German Ifo Business Climate Index numbers will draw interest today.

Hawkish central bank chatter and a deteriorating economic outlook could materially weigh on business sentiment as the ECB pushes ahead to tame inflation.

Economists forecast the headline Ifo Business Climate Index to fall from 91.7 to 90.7.

With business sentiment in focus, investors should monitor ECB commentary throughout the day. ECB President Christine Lagarde and ECB Executive Board Member Elizabeth McCaul are on the calendar to speak today. Dovish July sentiment or hawkish September policy intentions would move the dial.

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 consider, leaving the DAX in the hands of Fed chatter.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The DAX sat below the 100-day EMA (15,995). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 (15,920) would give the bulls a run at the 100-day EMA (15,995), R2 (16,011), and the 50-day EMA (16,056). However, a fall through the 200-day EMA (15,808) would bring S1 (15,736) into view. A move through the 50-day EMA would send a bullish signal.

Resistance & Support Levels

The DAX Futures Sees Green

Across the futures markets, DAX was up 46 points, with the Dow and NASDAQ rising by 73 and 44 points, respectively.

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