DAX Set for a Bearish Open as the Focus Turns to the ECB

Highlights

• It was a bullish Thursday for the DAX, gaining 0.59% to end the day at 16,204.
• Economic indicators from Europe and corporate earnings supported the bullish session.
• It is a quiet Friday, with no euro area or US economic indicators to influence.

It was a bullish Thursday session for the DAX, which gained by 0.59%. Reversing a 0.10% loss from Wednesday, the DAX ended the day at 16,204. Significantly, the DAX struck a new July high of 16,211.

Producer prices from German delivered early support, with the producer price index suggesting a possible pickup in demand for goods. US economic indicators and corporate earnings were also DAX-friendly.

In the US, Tesla (TSLA), Netflix (NFLX), and Goldman Sachs (GS) earnings weighed on the US markets. However, Johnson & Johnson (JNJ) upwardly revised its annual profit forecast to support the Dow.

The NASDAQ Composite Index and the S&P 500 saw losses of 2.05% and 0.68%, respectively, while the Dow gained 0.47%.

German Producer Prices Deliver Comfort

It was a relatively busy day on the European economic calendar, with German producer prices providing early support.

The German producer price index fell by 0.3% in June, following a 1.4% slide in May. Economists forecast a 0.4% decline. However, producer prices increased by 0.1%, year-over-year.

US economic indicators were also market-friendly, supporting the bets on a US soft landing. US initial jobless claims fell from 237k to 228k. The less influential Philly Fed Manufacturing Index rose from -13.7 to -13.5 in July.

The Market Movers

It was another mixed session for the auto sector. Continental AG and Mercedes-Benz Group saw losses of 0.06% and 0.46%, respectively. However, BMW and Volkswagen ended the day up 0.45% and 0.24%, respectively, while Porsche ended the day flat.

However, it was a bullish session for the banks. Commerzbank and Deutsche Bank ended the day with gains of 1.04% and 0.66%, respectively.

While bank stocks were among the front runners, Fresenius led the way, surging by 6.39% on news of a tornado hitting a Pfizer Inc. (PFE) factory in North Carolina.

The Day Ahead for the DAX

It is a quiet day ahead for the DAX. There are no euro area or US economic indicators to move the dial.

The lack of economic indicators will leave sentiment toward monetary policy and corporate earnings to provide direction. Later in the day, the DAX will likely take its cues from the US markets.

After the hotter-than-expected Eurozone core inflation numbers, the ECB looks set to deliver a 25-basis point interest rate hike next week. However, the markets would be more sensitive to any plans to hike rates in September.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day (16,012) and 200-day (15,877) EMAs, signaling bullish momentum over the near and longer term.

Significantly, the 50-day EMA pulled further away from the 200-day EMA, sending bullish signals and supporting a run at the 16,310 – 16,360 resistance band.

A DAX move through the July high of 16,211 would bring the 16,310 – 16,360 resistance band into play. However, corporate earnings must be DAX-friendly to support a bullish session.

A fall through the upper level of the 16,080 – 16,000 support band would bring sub-16,000 and the 50-day EMA (16,012) into view.

The 14-4H RSI sits at 66.44, sending bullish signals. Significantly, the RSI aligns with the EMAs, supporting a breakout from the July high (16,211) to target the 16,310 – 16,360 resistance band.

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