DAX Set for a Bullish Open as Investors Focus on the US CPI Report

Highlights

• It was a bearish Tuesday for the DAX, falling 1.10% to wrap up the day at 15,775.
• Trade data from China sent the DAX into negative territory, with exports tumbling by 14.5% in July year-over-year.
• Inflation figures from China will set the tone this morning as investors look toward the US CPI Report on Thursday.

It was a bearish Tuesday for the DAX, which fell by 1.10%. Following a 0.01% decline on Monday, the DAX ended the day at 15,775. Significantly, the DAX ended the day at sub-16,000 for the fourth consecutive session.

Softer inflation numbers from Germany failed to provide support. Trade data from China weighed on investor sentiment, the latest import and export numbers raising doubts about a sustainable economic recovery.

Exports from China tumbled by 14.5% in July versus a 12.4% decline in June. Imports slumped by 12.4% versus a more modest 6.8% fall in June. Economists forecast exports to fall by 9.8% and imports to decline by 5.6%. The dollar trade surplus widened from $70.62 billion to $80.60 billion.

Trade data from the US had a limited impact on the DAX. However, investors responded to the news of Moody’s cutting the credit ratings of several small to medium-sized US banks and the threat of downgrading larger US banks on weaker profitability and liquidity.

From the Tuesday US session, investors will need to consider Fed chatter. FOMC member Patrick Harker suggested the Fed may be at the end of the monetary policy tightening cycle.

The NASDAQ Composite Index fell by 0.79% on Tuesday. The Dow and the S&P 500 saw losses of 0.45% and 0.42%, respectively.

German Inflation Numbers Provide Little Comfort

It was a relatively quiet day on the European economic calendar. Finalized inflation numbers from Germany were in focus.

Inflationary pressures softened in Germany, with the annual inflation rate easing from 6.4% to 6.2% in July. However, the finalized numbers were aligned with prelim figures, leaving sentiment toward ECB monetary policy unchanged.

Trade data from the US also failed to influence. The US trade deficit narrowed from $69.00 billion to $65.50 billion in June versus a forecasted $65.00 billion deficit.

The Market Movers

It was a bearish session for the auto sector. Porsche and Continental AG slid by 2.88% and 2.35%, respectively. BMW and Volkswagen ended the day down 1.81% and 1.61%, respectively, with Mercedes-Benz Group falling by 1.57%.

It was also a bearish session for the banks. Commerzbank and Deutsche Bank slid by 3.34% and 3.84%, respectively. US bank downgrades weighed.

The Day Ahead for the DAX

Inflation figures from China set the tone ahead of the European opening bell.

Consumer prices fell by 0.3% year-over-year in July after stalling in June. Economists forecast a 0.4% decline, signaling weak consumer demand. However, consumer prices increased by 0.2% in July, reversing a 0.2% decline in June. Economists forecast a 0.1% increase.

However, the producer price index fell by 4.4% year-over-year, following a 5.4% decline in June. Economists forecast a 4.1% decline.

While the producer price index declined at a less marked pace in July, the 4.4% fall reflected the ongoing weakness in global demand, aligned with the July Caixin manufacturing PMI and the latest import and export figures. Nonetheless, a possible bottoming out and a pickup in consumer prices should provide some comfort.

From the euro area and the US, there are no euro area economic indicators to change the mood.

However, investors should track central bank chatter with the media throughout the session.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The DAX sat below the 50-day (16,055) and 200-day (15,955) EMAs, sending bearish near and longer-term price signals.

Significantly, the 50-day EMA narrowed to the 200-day EMA, sending bearish price signals and supporting a DAX return to sub-15,750 to bring the 15,600 – 15,525 support band into play.

However, a DAX move through the 200-day EMA (15,955) and the lower level of the 16,000 – 16,080 resistance band would give the bulls a run at the 50-day EMA (16,055).

The 14-4H RSI sits at 35.13, signaling bearish sentiment, with selling pressure overweighing buying pressure. Significantly, the RSI aligns with the EMAs, supporting a return to sub-15,750 to bring the 15,600 – 15,525 support band into play.

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