DAX in the Hands of ECB Chief Economist Philip Lane

It was a bullish end to a bullish week for the DAX, rising by 0.42%. Reversing a 0.13% loss from Thursday, the DAX ended the week up 2.56% to 16,358. Significantly, the DAX struck a new all-time high of 16,427.

Euro area economic indicators weighed on the DAX early in the European session. Wage growth and sticky core inflation supported hawkish ECB inflation projections and policy outlook from Thursday.

However, US economic indicators delivered support and allowed investors to brush aside hawkish Fed chatter.

FOMC member Christopher Waller said,

“Inflation is just not moving, and that’s going to require, probably, some more tightening to try to get that going down.”

FOMC member Thomas Barkin also raised the prospects of a July hike, saying he supports more rate hikes considering current inflation levels.

However, the US equity markets succumbed to hawkish commentary. The NASDAQ Composite Index fell by 0.68%, with the Dow and S&P 500 seeing losses of 0.32% and 0.37%, respectively.

US Consumer Sentiment Delivers Support

It was a relatively quiet day on the European economic calendar. Finalized euro area inflation numbers drew interest early in the European session.

The core annual inflation rate softened from 5.6% to 5.3%, while the inflation rate eased from 7.0% to 6.1%. However, wage growth came in hotter-than-expected. Eurozone wages grew by 4.6% in Q1 versus 5.0% in Q4. Economists forecast wages to grow by 3.3%.

While euro area economic indicators weighed, US statistics delivered late support.

According to prelim figures, the Michigan Consumer Expectations Index rose from 55.4 to 61.3, with the Sentiment Index up from 59.2 to 63.9. Significantly, the Michigan Inflation Expectations Index fell from 4.2% to 3.3%, supporting a less hawkish Fed policy outlook.

Consumer sentiment toward easing inflation and the debt ceiling crisis resolution lifted the Sentiment Index. Following the better-than-expected retail sales figures for May, the Consumer Sentiment and Expectation numbers signal a positive outlook and should ease recessionary fears.

The Market Movers

It was a mixed day for the auto sector. BMW and Volkswagen ended the day with losses of 0.71% and 0.81%, respectively. Porsche and Continental AG fell by 0.17% and 0.03%, respectively, while Mercedes-Benz Group gained 1.22%.

It was also a mixed session for the banks. Commerzbank ended the day up 1.28%, while Deutsche Bank fell by 1.32%.

The Day Ahead for the DAX

It is a quiet start to the week, with no economic indicators from the euro area or the US to draw investor interest.

The lack of economic indicators will leave investors to digest the latest numbers from Germany and the euro area and sentiment toward central bank monetary policy.

ECB Chief Economist Philip Lane will move the dial later today. Comments relating to the economic outlook and inflation will garner interest.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day EMA (16,089). 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 (16,089) would support a breakout from R1 (16,431) to give the bulls a run at R2 (16,504). However, a fall through S1 ($16,281) would bring S2 (16,204) and the 50-day EMA (16,089) into view. A fall through the 50-day EMA would signal a near-term bullish trend reversal.

Resistance & Support Levels

The DAX has to avoid the 16,354 pivot to target the First Major Resistance Level (R1) at 16,431. A move through the Friday high of 16,427 would send a bullish signal. However, the DAX would need risk-on sentiment to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,504. The Third Major Resistance Level (R3) sits at 16,654.

A fall through the pivot would bring the First Major Support Level (S1) at 16,281 into play. However, barring a central bank-fueled sell-off, the DAX should avoid sub-16,250 and the Second Major Support Level (S2) at 16,204. The Third Major Support Level (S3) sits at 16,054.

The DAX Futures Sees Red

Across the futures markets, DAX was down 111 points, with the Dow and NASDAQ falling by 71 and 0.25 points, respectively.

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