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

Highlights

• It was a bearish Wednesday for the DAX, falling 0.49% to end the day at 16,132.
• Fed Fear weighed on the DAX, with uncertainty about the Fed’s post-summer policy goals leaving the DAX in the red.
• It is a busy day ahead, with the ECB monetary policy decision, ECB press conference, and the economic calendar set to drive market risk sentiment.

It was a bearish Wednesday for the DAX, which fell by 0.49%. Reversing a 0.13% gain from Tuesday, the DAX ended the day at 16,132. Significantly, the DAX avoided sub-16,000 for a seventh consecutive day.

There were no euro area or US economic indicators to distract investors from the looming Fed interest rate decision and the Fed press conference. Fear Fear weighed on investor sentiment, with uncertainty toward post-summer policy plans leaving the DAX in the red.

Economic Calendar Silent

There were no euro area or US economic indicators to distract investors from the post-European closing bell Fed interest rate decision and the Fed press conference.

Investors brushed aside US housing sector data for June.

The Market Movers

It was another bearish session for the auto sector. Mercedes-Benz Group slid by 1.77%, with Volkswagen falling by 1.42%. BMW and Porsche also struggled, ending the day with losses of 1.16% and 1.22%, respectively. Continental AG saw a more modest 0.17% loss on the day.

It was a mixed session for the banks. Commerzbank fell by 0.63%, while Deutsche Bank gained 1.36% on buyback news.

Adidas led the way down, sliding by 2.21%, with investors locking in profits on Fed jitters and China’s economic woes.

The Day Ahead for the DAX

It is a busy day ahead for the DAX. German consumer sentiment figures for August will draw interest early in the European session. Economists forecast the GfK Consumer Climate Index to rise from -25.4 to -24.7.

However, investors will likely ignore the numbers, with the ECB monetary policy decision and ECB President Christine Lagarde press conference in focus. With the markets betting on a 25-basis point rate hike, forward guidance will impact investor sentiment. Hawkish sentiment toward the September meeting would test buyer appetite.

US economic indicators will also need consideration, with Q2 GDP, core durable goods orders, and jobless claims out. Weaker-than-expected GDP numbers could test the soft-landing theory.

After the European closing bell on Wednesday, the Fed delivered a 25-basis point interest rate hike, leaving Fed Chair Powell to influence market risk sentiment.

Fed Chair Powell disappointed investors looking for an end to the monetary policy tightening cycle, saying,

“It is certainly possible that we would raise the (Fed) funds rate again at the September meeting if the data warranted, and I would also say it’s possible that we would choose to hold steady at that meeting.”

For those looking for a timeline for rate cuts, Powell said,

“We’ll be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year.”

While the monetary policy outlook was bearish, Powell highlighted that central bank staff are no longer forecasting a recession, supporting the bets on a soft landing. The Fed and market bets on a soft landing should deliver early support.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day (16,069) and 200-day (15,909) 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, the ECB and US economic indicators 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 (16,069) and sub-16,000 into view.

The 14-4H RSI sits at 51.84, sending moderately 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.