DAX Set for a Bullish Open with the ECB and US CPI Report in Focus

Highlights

• It was a bullish Wednesday for the DAX, gaining 0.49% to wrap up the day at 15,853.
• Inflation numbers from China delivered early support, with news from Italy adding to the bullish sentiment.
• Today, the US CPI will be the focal point, with a pickup in inflationary pressure likely to fuel bets on a Fed rate hike.

It was a bullish Wednesday for the DAX, which gained 0.49%. Partially reversing a 1.10% loss from Tuesday, the DAX ended the day at 15,853. Significantly, the DAX ended the day at sub-16,000 for the fifth consecutive session.

There were no economic indicators from Germany or the euro area to influence. However, consumer inflation and producer price index numbers from China provided support.

Consumer prices fell by 0.3% year-over-year in July after stalling in June. Economists forecast a 0.4% decline, signaling weak consumer demand. However, consumer prices increased by 0.2% in July, reversing a 0.2% decline in June. Economists forecast a 0.1% increase.

The producer price index fell by 4.4% year-over-year, following a 5.4% decline in June. Economists forecast a 4.1% decline.

While the producer price index declined at a less marked pace in July, the 4.4% fall reflected the ongoing weakness in global demand, aligned with the July Caixin manufacturing PMI and the trade data. Nonetheless, a possible bottoming out and a pickup in consumer prices provided some comfort.

News from Italy was also bullish, with the government announcing a new tax on banking profit would not breach 0.1% of bank assets. The markets expected a banking profit tax of 0.5%.

There were no US economic indicators to consider, leaving the markets to look toward the US CPI Report.

The NASDAQ Composite Index fell by 1.17% on Wednesday. The Dow and the S&P 500 saw losses of 0.70% and 0.54%, respectively.

The Market Movers

It was a mixed session for the auto sector. Mercedes-Benz Group and Continental AG slid by 1.11% and 1.46%, respectively, with BMW falling by 0.49%. However, Volkswagen gained 0.40%, while Porsche ended the day flat.

It was a bullish session for the banks. Commerzbank and Deutsche Bank saw gains of 0.36% and 1.61%, respectively.

Vonovia led the way, gaining 3.89% on recent buy rating affirmations from Goldman Sachs, Deutsche Bank, and DZ Bank.

The Day Ahead for the DAX

There are no euro area economic indicators to influence, leaving the ECB Economic Bulletin to move the dial. Economic indicators from Germany and China have refueled recessionary jitters. The ECB Economic Bulletin has to dismiss the chances of a Eurozone recession to deliver a bullish morning session.

Later in the day, the US CPI Report will have more impact. A pickup in inflationary pressure would reignite bets on a September Fed interest rate hike and fuel recessionary jitters.

Economists forecast the US annual inflation rate to accelerate from 3.0% to 3.0% and for core inflation to hold steady at 4.8%.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The DAX sat below the 50-day (16,036) and 200-day (15,953) EMAs, sending bearish near and longer-term price signals.

Significantly, the 50-day EMA narrowed to the 200-day EMA, sending bearish price signals and supporting a DAX return to sub-15,750 to bring the 15,600 – 15,525 support band into play.

However, a DAX move through the 200-day EMA (15,953) and the lower level of the 16,000 – 16,080 resistance band would give the bulls a run at the 50-day EMA (16,036).

The 14-4H RSI sits at 42.24, signaling bearish sentiment, with selling pressure overweighing buying pressure. Significantly, the RSI aligns with the EMA, supporting a return to sub-15,750 to bring the 15,600 – 15,525 support band into play.

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