DAX Eyes Central Bank Chatter and Debt Ceiling Talks

It was a bullish end to a bullish week for the DAX on Friday. Following a 1.33% gain on Thursday, the DAX rose by 0.69% to end the week up 2.27% to 16,275. Significantly the DAX struck a new ATH high of 16,332 before easing back.

Progress toward a US debt ceiling deal fueled hopes of a soft landing, with the Nikkei hitting its highest levels since the 1990s during the Asia session.

However, central bank monetary policy outlooks remain hawkish, with the ECB and the Fed facing sticky inflation and tight labor market conditions.

Economic data from Germany were DAX-friendly on Friday, with German wholesale inflation softening. Nonetheless, producer prices unexpectedly rose in April, leaving pressure on the ECB to continue raising interest rates.

There were no US economic indicators to distract investors, leaving Fed chatter and US debt ceiling-related news in focus. Fed Chair Powell discussed monetary policy late in the European session.

Fed Chair Powell provided some Friday comfort saying that rates may not need to rise as much as previously anticipated to tame inflation. Nonetheless, the Fed Chair was on the fence about the next meeting.

However, the news of GOP negotiators halting debt ceiling talks led to a bearish end to the Friday session.

On Friday, the NASDAQ Composite Index fell by 0.24%, with the S&P 500 and the Dow seeing losses of 0.14% and 0.33%, respectively.

German Producer Prices Soften in April

The German Producer Price Index increased by 0.3% in April versus a forecasted 0.5% decline. In March, the Index slid by 1.4%. Year-over-year, the Index was up 4.1% versus 6.7% in March. Economists forecast a 4.0% rise.

According to Destatis,

• Compared with April 2022, producer prices for capital goods increased by 6.8% and 0.6% month-on-month.
• Vehicles and parts prices rose 5.6% year-over-year and 0.9% compared to March 2023.
• Prices for non-durable consumer goods were up 11.4% compared with April 2022, with food prices rising by 13.6%.
• Durable consumer goods prices increased by 8.8% year-over-year and 0.2% month-on-month.
• Significantly, energy prices were 2.8% higher than in April 2022, with energy prices up 1.0% in April 2023. Energy prices increased for the first time since September 2022.

However, a quiet US economic calendar left Fed Chair Powell to move the dial.

The DAX Market Movers

It was a mixed day for the auto sector. BMW and Mercedes-Benz Group saw gains of 0.86% and 0.96%, respectively, with Porsche rising by 0.75%. However, Volkswagen and Continental ended the day with losses of 0.08% and 0.61%, respectively.

It was also a mixed session for the banks. Commerzbank fell by 1.35%, while Deutsche Bank gained 0.20%.

The Day Ahead for the DAX

It is a quiet start to the week on the European economic calendar. Eurozone consumer confidence will draw interest later in the session. An unexpected slide in consumer confidence would test buyer appetite.

Economists forecast the Consumer Confidence Index to rise from -17.5 to -17.0 in May.

While it is a quieter start to the week, it is a busy week ahead for the global financial markets. Investors should monitor ECB chatter today, with inflation and central bank policy goals as the themes for the week.

ECB Chief Economist Philip Lane and ECB Executive Board members Luis de Guindos and Frank Elderson are on the calendar to speak today.

However, FOMC members Bullard, Barkin, and Bostic will also deliver speeches today.

While central bank chatter will influence, US debt ceiling-related news will need consideration.

Technical Indicators

Resistance & Support Levels

The DAX has to avoid the 16,270 pivot to target the First Major Resistance Level (R1) at 16,337. A move through the Friday high of 16,332 would send a bullish signal. However, the DAX would need central bank chatter and debt ceiling updates to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,398. The Third Major Resistance Level (R3) sits at 16,526.

A fall through the pivot would bring the First Major Support Level (S1) at 16,209 into play. However, barring a risk-off-fueled sell-off, the DAX should avoid sub-16,200 and the Second Major Support Level (S2) at 16,142. The Third Major Support Level (S3) sits at 16,014.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,938). 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 (15,938) would support a breakout from R1 (16,337) to give the bulls a run at R2 (16,398). However, a fall through S1 (16,209) would bring S2 (16,142) into view. A fall through S3 (16,014) and the 50-day EMA (15,938) would signal a near-term bullish trend reversal.

The DAX Futures Sees Red

Looking at the futures markets, DAX was down 11 points, with the NASDAQ mini falling by 3. The Dow declined by 47.

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