DAX Index: Futures Signal a First Visit to 17,000 with the ECB in Focus

Highlights

• The DAX declined by 0.15% on Wednesday, ending the session at 16,766.
• Euro area economic indicators and caution before the Fed interest rate decision left the DAX in negative territory.
• On Thursday, investors will respond to the dovish FOMC projections before considering the ECB policy decision and US data.

Overview of the DAX Performance on Wednesday

The DAX declined by 0.15% on Wednesday. Following a 0.02% loss on Tuesday, the DAX ended the Wednesday session at 16,766. Significantly, the DAX failed to strike a new All-Time High (ATH) for the first time in four sessions.

Euro Area and US Stats Disappoint

On Wednesday, Eurozone industrial production declined by more than expected in October. Production fell by 0.7% vs. a 1.0% decline in September. Economists forecast a 0.3% fall. The report highlighted the weak demand environment impacting the global economy.

US economic indicators failed to support buyer demand later in the session. Producer prices increased by less than forecast in November. Softer producer prices would ease pressure on the Fed to keep interest rates elevated. However, the numbers could also signal a weakening in demand.

Fed Delivers Market-Friendly Economic Projections

After the European closing bell, the FOMC interest rate decision garnered investor interest. The Fed left interest rates unchanged, aligned with forecasts.

However, dovish FOMC projections supported the buyer appetite for riskier assets. The Fed projected the US economy to expand by 1.4% in 2024, down from a September forecast of 1.5%. Significantly, the Fed expected a Fed Funds Rate of 4.6% for 2024, down from a September forecast of 5.1%.

Expectations of a soft landing and a less hawkish rate path were a boon for riskier assets.

On Wednesday, the Dow rallied 1.40%, with the Nasdaq Composite Index and the S&P 500 rising by 1.38% and 1.37%, respectively. 10-year US Treasury yields ended the session down 4.35% to 4.020%.

The Wednesday Market Movers

Zalando SE and Siemens Energy AG sat at the bottom of the DAX for the third consecutive session. Ongoing concerns about consumer demand left Zalando AG down 1.84%. Investors also continued to react to the news of Morgan Stanley (MS) downgrading Encavis, another renewable energy producer, sending Siemens Energy AG down 3.20%.

Auto stocks also had a negative session. BMW and Mercedes Benz Group slid by 1.24% and 1.56%, respectively. Porsche fell by 0.73%, with Volkswagen declining by 0.66%. Daimler Truck Holding ended the session down 0.49%.

However, BASF rallied 4.43%. Progress on sustainability goals fueled buyer demand. JPMorgan Chase (JPM) upgraded BASF from neutral to overweight, contributing to the session gains. Hannover Rueck SE consolidated gains from Tuesday, rising by 1.69%, as investors responded further to its net profit projection (24%) for 2024.

ECB Interest Rate Decision and Press Conference in Focus

On Thursday, the ECB will be in the spotlight. The markets expect the ECB to leave interest rates unchanged at 4.5%. Barring a surprise ECB interest rate decision, the ECB press conference will be the focal point.

Inflation and economic projections for 2024 and forward guidance on monetary policy need consideration. Guidance on the likely timing of a first ECB rate cut would be significant for the DAX. Currently, expectations range between Q1 and Q2 2024.

US Retail Sales and Jobless Claims in Focus

US retail sales and jobless claims also warrant investor attention. An unexpected rise in retail sales would fuel further expectations of the US avoiding a hard landing. However, a spike in US jobless claims could affect sentiment toward the US economy.

Economists forecast US retail sales to decline by 0.1% in November, following a 0.1% fall in October. However, economists expect initial jobless claims to hold steady at 220k in the week ending December 9.

While the stats will draw investor interest, the reports will play second fiddle to the ECB press conference. The ECB press conference starts 15 minutes after the release of the numbers.

The futures markets pointed to a positive start to the Thursday session. The DAX and the Nasdaq mini were up 194 and 89 points, respectively.

Short-Term Forecast

DAX trends will likely hinge on the ECB press conference and US economic indicators. With the futures pointing to a new all-time high opening, a dovish ECB outlook on interest rates but an optimistic view on the economy would be a boon for the DAX.

DAX Technical Indicators

Daily Chart

The DAX remained above the 50-day and 200-day EMAs, with the EMAs affirming bullish price signals.

A DAX move above the Tuesday ATH 16,837 would give the bulls a run at the 17,000 psychological resistance level.

The ECB and US retail sales are focal points.

However, a fall through the 16,750 handle would bring the 16,470 support level into play.

The 14-day RSI reading of 81.94 shows the DAX in overbought territory. Selling pressure could intensify at the Tuesday ATH of 16,837.

4-Hourly Chart

The DAX held above the 50-day and 200-day EMAs, with the EMAs reaffirming bullish price signals.

A DAX break above the Tuesday ATH 16,837 would support a move to 17,000.

However, a drop below the 16,750 handle would give the bears a run at the 16,470 support level.

The 69.63 14-4 hour RSI shows the DAX on the border with overbought territory. Selling pressure could intensify at the ATH of 16,837.

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