DAX Set for a Bullish Open With the German Economy and ECB in Focus

It was a bullish Tuesday session for the DAX. The DAX rose by 0.20% on Tuesday. Partially reversing a 0.54% loss from Monday, the DAX ended the day at 15,992. Significantly, the DAX revisited the 16,000 handle for the third consecutive session.

Euro area economic indicators were bearish, capping the upside, while bets on a Fed pause in June provided support. According to the CME FedWatch Tool, the probability of a 25-basis point June interest rate hike slipped from 24.1% to 19.4% on Tuesday versus 66.6% one week earlier.

There were no US economic indicators or Fed commentary for investors to consider.

Euro Area Economic Indicators Flash Red

It is a relatively busy day on the European economic calendar. German factory orders were in focus this morning. In March, German factory orders tumbled by 10.9%. Another sizeable fall in orders could force the ECB to rethink its monetary policy plans to tame inflation.

German factory orders fell by 0.4% in April versus a revised 10.9% slump in March. Economists forecast factory orders to fall by 2.2% in April.

While the numbers beat forecasts, the continued decline in new orders and weak overseas demand remains a concern. In May, Germany’s manufacturing PMI fell from 44.5 to 43.2, with new orders falling at the most marked rate since November 2022.

Euro area retail sales figures also disappointed. In April, retail sales stalled after a 0.4% decline in March. Economists forecast a 0.2% increase.

The latest numbers support an ECB pause. However, ECB members continue to voice the need for further tightening to tame inflation. ECB President Lagarde had this to say on inflation,

“The latest available data suggests that indicators of underlying inflationary pressures remain high and, although some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked.”

There were no US economic indicators or Fed chatter to influence. The FOMC entered the blackout period on Saturday, June 3.

The Market Movers

It was a mixed day for the auto sector. Volkswagen and BMW saw gains of 1.22 % and 0.24%, respectively. Porsche ended the session flat. Continental and Mercedes-Benz Group bucked the trend, falling by 0.66% and 0.01%, respectively.

However, it was a bullish session for the banks. Commerzbank and Deutsche Bank ended the day with gains of 1.18% and 0.91%, respectively.

The Day Ahead for the DAX

It is a busy day on the European economic calendar. German industrial production numbers for April will draw plenty of interest early in the European session. German industrial production unexpectedly fell in March, raising concerns about the German economy. Manufacturing PMI numbers have also painted a gloomy outlook.

However, a pickup in production would provide little comfort following another fall in factory orders.

Economists forecast industrial production to fall by 1.3% in April, which would pressure the DAX.

Later in the session, French trade data and Italian retail sales figures will also need consideration.

With the economic calendar on the busier side, investors should monitor central bank chatter throughout the Tuesday session. ECB Executive Board members Luis de Guindos, Fabio Panetta, and Edouard Fernandez-Bollo are on the calendar to speak today. Dovish commentary would catch the markets by surprise.

US Economic Calendar Is Unlikely to Influence

It is another quiet day on the US economic calendar. Trade data will need consideration early in the session. However, barring a sharp widening in the trade deficit, the numbers should have a limited impact on the DAX.

While the economic calendar is light, 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 15,976 pivot to target the First Major Resistance Level (R1) at 16,025. A move through the Tuesday high of 16,009 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 16,059 and resistance at 16,100. The Third Major Resistance Level (R3) sits at 16,142.

A fall through the pivot would bring the First Major Support Level (S1) at 15,942 into play. However, barring a risk-off-fueled sell-off, the DAX should avoid sub-15,900 and the Second Major Support Level (S2) at 15,893. The Third Major Support Level (S3) sits at 15,810.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day EMA (15,945). 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 (15,945) would support a breakout from R1 (16,025) to give the bulls a run at R2 (16,059) and 16,100. However, a fall through the 50-day EMA (15,945) and S1 (15,942) would bring S2 (15,893) and the 100-day EMA (15,877) into view. A fall through the 50-day EMA would send a bearish signal.

The DAX Futures Sees Green

Eying the futures markets, DAX and the Dow were up 31 and 11 points, respectively. The NASDAQ was down 2.75 points.

Ahead of the European session, China trade data set the tone. China’s USD trade surplus narrowed from $90.21 billion to $65.81 billion in May versus a forecasted $71.60 billion. Significantly, exports tumbled by 7.5% year-over-year, with imports down by 4.5%. Economists forecast exports to rise by 8.0% and imports to fall by 8.0%.

While the numbers were bearish, hopes of China stimulus supported riskier assets.

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