DAX at Risk of Another Pullback Amidst Rising US Recession Risk

It was a bearish Wednesday session. The DAX fell by 0.53% to end the day at 15,520.

Factory order numbers from Germany provided brief support. However, US economic indicators fueled recessionary fears to send the DAX into negative territory.

On Wednesday, the NASDAQ Composite Index and the S&P 500 fell by 1.07% and 0.25, respectively. The Dow Jones ended the day up 0.24%.

US Economic Indicators Flash Red

On Wednesday, German factory orders drew interest. Factory orders surged by 4.8% in February versus a 0.5% rise in January. Economists forecast a 0.3% increase in February.

According to Destatis,

• New orders in the capital goods sector jumped by 7.3% in February, while orders in the intermediate goods sector increased by 1.3% and 1.9% in the consumer goods sector.
• Motor vehicles and engines (+3.7%) saw solid orders.
• Excluding large-scale orders, orders increased by 1.2% in February.
• New orders in the manufacturing sector increased for a third consecutive month.
• However, new orders are 5.7% lower than in February 2022.

While economic indicators from Germany were bullish, US stats continued to flash red.

The all-important ISM Non-Manufacturing PMI fell from 55.1 to 51.2 versus a forecasted 54.5. Notably, the employment index fell from 54.0 to 51.3. ADP numbers also weighed on riskier assets. In March, the ADP reported a 145k increase in employment, down from 261k in February. Economists forecast a rise of 200k.

Weaker JOLTs job openings set the tone ahead of the Wednesday numbers.

The Market Movers

It was a mixed Wednesday for the auto sector. Continental slid by 5.15%, with BMW and Daimler seeing losses of 2.22% and 2.85%, respectively. Volkswagen and Porsche fell by 1.05% and 0.95%, respectively.

It was also a bearish session for the banks. Commerzbank and Deutsche Bank ended the day with losses of 1.72% and 0.30%, respectively.

The Day Ahead for the DAX

It is a quieter day ahead on the economic calendar. German industrial production will be in focus early in the session. Following the surge in factory orders, the numbers will need to beat forecasts to deliver support. Economists forecast a 0.1% increase in February.

Later in the session, US jobless claims will draw interest. Following the JOLTs job openings and ADP numbers, we expect increased sensitivity to the jobless claims report.

DAX Technical Indicators

The DAX has to move through the 15,543 pivot to target the First Major Resistance Level (R1) at 15,604 and the Wednesday high of $15,627. A return to 15,600 would signal a bullish session. However, the DAX would need German and US economic indicators to support a bullish session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $15,687. The Third Major Resistance Level (R3) sits at 15,831.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,460 in play. However, barring a flight to safety, the DAX should avoid sub-$15,300. The Second Major Support Level (S2) at 15,399 should limit the downside. The Third Major Support Level (S3) sits at 15,255.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,360). After last Thursday’s bullish cross, the 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the Major Support Levels and the 50-day EMA (15,360) would support a breakout from R1 (15,604) to give the bulls a run at R2 (15,687). However, a risk-off event would deliver a fall through S1 (15,460) to bring S2 (15,399) into play. A fall through the 50-day (15,360) would signal a near-term bullish trend reversal.

The DAX Futures Sees Red

Looking at the futures markets, DAX was down 8 points, with the NASDAQ mini falling by 52.5. The Dow mini was down by 48 points.

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