DAX Set for a Bearish Open on Post-June Fed Uncertainty

It was a bullish Tuesday session, with the DAX gaining 0.83%. Following a 0.93% rally on Monday, the DAX ended the day at 16,231. Despite the bullish session, the DAX fell short of the May 19 all-time high of 16,332.

Economic indicators from the Euro area failed to provide support, with investors on the sidelines ahead of the US CPI Report. However, the US CPI Report did not disappoint. Softer-than-expected inflation numbers cemented a June Fed pause.

The US equity markets also responded to the stats. The NASDAQ Composite Index rose by 0.83% on Tuesday, with the Dow and S&P 500 seeing gains of 0.43% and 0.69%, respectively.

US CPI Report Delivered a Bullish Tuesday Session

Euro area economic indicators had a limited impact on the DAX, with investors focused on the US CPI Report out later in the session.

Finalized German inflation numbers were aligned with prelim figures, confirming easing inflationary pressure in May. Germany’s annual inflation rate softened from 7.2% to 6.1%, with the Harmonized Index of Consumer Prices up 6.3% year-over-year versus 7.6% in April.

ZEW Economic Sentiment figures were also DAX-friendly. The German ZEW Economic Sentiment Index rose from -10.7 to -8.5 versus a forecasted fall to -13.1. The German ZEW Current Conditions Index tumbled from -34.8 to -56.5 in June, overshadowing improving sentiment.

However, the US CPI Report supported the recovery of early losses. In May, the US annual inflation rate softened from 4.9% to 4.0% versus a forecasted 4.1%. The core inflation rate eased from 5.5% to 5.3%.

According to the CME FedWatch Tool, bets on the Fed hiking rates by 25 basis points in June tumbled in response to the inflation numbers. The probability of a June 25-basis point interest rate hike fell from 20.9% to 4.6%, with the chances of a July 50-basis point interest rate hike falling from 14.0% to 2.9%.

However, the probability of a 25-basis point July hike increased from 59.9% to 60.9%, capping the session gains.

The Market Movers

It was a bullish day for the auto sector. BMW and Porsche ended the day up 1.74% and 1.37%, respectively, with Continental rising by 1.26%. Mercedes-Benz Group and Volkswagen also found support, with gains of 1.06% and 1.03%, respectively.

It was also a bullish session for the banks. Commerzbank and Deutsche Bank ended the day with up by 1.80% and 0.04%, respectively.

The Day Ahead for the DAX

It is a busy day on the European economic calendar.

German wholesale inflation figures will draw interest early in the European session. With the ECB delivering its June interest rate decision on Thursday, we expect the wholesale inflation numbers to influence.

Economists forecast German wholesale prices to fall by 1.0% in May and down by 3.3% year-over-year. Weaker numbers would raise further concerns over demand.

Later this morning, Eurozone industrial production figures will also need consideration. However, the numbers are unlikely to influence the ECB monetary policy decision despite cracks appearing in the euro area economy.

Looking ahead to the US session, it is a busy day on the economic calendar. US wholesale inflation numbers will be the main report of the day. Softer-than-expected US wholesale inflation numbers should further ease pressure on the Fed to push interest rates higher.

After the closing bell, the FOMC interest rate decision, economic projections, and press conference will have a material impact on riskier assets. Talk of a July move would test buyer appetite though the European markets will respond on Thursday.

Per the CME FedWatch Tool, bets on a July rate hike are on. Talk of a longer Fed pause would be bullish, though the Fed would need to avoid hard landing chatter.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to avoid the 16,184 pivot to target the First Major Resistance Level (R1) at 16,280. A move through the Tuesday high of 16,233 would send a bullish signal. However, the DAX would need the euro area and US economic indicators to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,328 and resistance at the May ATH of 16,332. The Third Major Resistance Level (R3) sits at 16,472.

A fall through the pivot would bring the First Major Support Level (S1) at 16,136 into play. However, barring an inflation-fueled sell-off, the DAX should avoid sub-16,100 and the Second Major Support Level (S2) at 16,040. The Third Major Support Level (S3) sits at 15,896.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day EMA (15,992). 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 (15,992) would support a breakout from R1 (16,280) to give the bulls a run at R2 (16,328) and the May ATH of 16,332. However, a fall through S1 ($16,136) would bring S2 (16,040) and the 50-day EMA (15,992) into view. A fall through the 50-day EMA would send a bearish signal.

The DAX Futures Sees Red

Across the futures markets, DAX was up 18 points, with the Dow and NASDAQ falling by 82 and 1.5 points, respectively.

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