DAX to Face Another Test with the ECB and Fed Chair Powell in Focus

Highlights

• It was a bullish Tuesday session, with the DAX ending a six-day losing streak.
• Hopes of a Beijing stimulus package supported a bullish session, while hawkish central bank chatter capped the upside.
• It is a relatively busy day ahead, with German consumer sentiment numbers and influential central bankers in focus.

It was a bullish Tuesday for the DAX, which gained 0.21%. Reversing a 0.11% loss from Monday, the DAX ended the day at 15,847. Significantly, the DAX ended a six-day losing streak.

Hopes of a Beijing stimulus package to reboot the Chinese economy delivered much-needed support. The shift in sentiment supported a bullish Asian session that spilled into the European session.

However, hawkish central bank commentary capped the upside. Lagarde had this to say on inflation,

“The shocks that drove up prices are still feeding through to the economy and making inflation more persistent. The break this, we must bring rates to sufficiently restrictive levels and keep them there for as long as needed.”

ECB President Lagarde’s comments followed two days of hawkish Fed Chair Powell testimony and the BoE’s surprise 50-basis point interest rate hike.

There were no euro area economic indicators to influence, while better-than-expected US economic indicators supported a more hawkish Fed.

US Economic Indicators Flash Green

It was a quiet day on the European economic calendar. There were no economic indicators from the euro area to change the mood after disappointing German business sentiment figures on Monday.

The lack of euro area economic indicators left investors to focus on US numbers. US consumer confidence and core durable goods were in focus.

Consumer relief from the US averting a banking crisis turned to the hope of softer inflation on the horizon.

The CB Consumer Confidence Index increased from 102.5 to 109.7 in June versus a forecasted 104.0.

US core durable goods orders were also bullish, rising by 0.6% in May versus a 0.6% decline in April. Economists forecast a 0.1% decline. The DAX had a limited reaction to the number, with the US and German manufacturing sectors contracting at the end of Q2.

The Market Movers

It was a mixed Tuesday session for the auto sector. Continental AG bucked the trend, gaining 0.62%. However, Volkswagen fell by 1.66%, with BMW and Porsche seeing losses of 1.08% and 1.18%, respectively. Mercedes-Benz Group saw a more modest 0.21% decline.

It was a bullish session for the banks. Commerzbank and Deutsche Bank ended the day up 2.13% and 1.80%, respectively, on China stimulus bets.

The Day Ahead for the DAX

It is a busier Wednesday session. Germany’s GfK Consumer Climate numbers for July will be in focus early in the session. Weaker consumer sentiment would signal a pullback in spending, which could lead to a further slowdown in service sector activity.

However, while sticky inflation and elevated interest rates are bugbears, labor market conditions remain favorable. Wage growth and unemployment levels will likely partially offset the effects of inflation and interest rates. Increasing fear of a recession would be another story, however.

Looking ahead to the US session, there are no US economic indicators to influence. The lack of economic indicators will leave central bankers to move the dial.

ECB President Christine Lagarde, Chief Economist Philip Lane, and ECB Executive Board Members Luis de Guindos and Andrea Enria are on the calendar to speak today. Dovish July sentiment or hawkish September policy intentions would need consideration.

The Fed will also be in the spotlight, with Fed Chair Powell delivering a speech late in the European session.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The DAX sat below the 100-day EMA (15,976). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 (15,909) would give the bulls a run at R2 (15,972), the 100-day EMA (15,976), and the 50-day EMA (16,006). However, a fall through the 200-day EMA (15,809) would bring S1 (15,771) into view. A move through the 50-day EMA would send a bullish signal.

Resistance & Support Levels