DAX to Respond to Fed Recession Warning Ahead of Key Stats

It was a bullish Wednesday session. The DAX rose by 0.31% to end the day at 15,704. Notably, the DAX extended its winning streak to three sessions.

Economic data from the US provided modest support. However, elevated inflation leaves a 25-basis point Fed interest rate hike on the table despite the latest FOMC meeting minutes revealing expectations of a mild US recession.

There were no economic indicators from the euro area to influence ahead of the US CPI Report.

On Wednesday, the NASDAQ Composite Index fell by 0.85%, with the Dow and S&P 500 seeing losses of 0.11% and 0.41%, respectively.

US CPI Report Delivers a Bullish Wednesday Session

There were no euro economic indicators to influence ahead of the US session, leaving investors to consider the US CPI Report and FOMC meeting minutes.

US economic indicators delivered late support. In March, the US annual inflation rate softened from 6.0% to 5.0% versus a forecasted 5.2%. While the headline inflation figure was bullish, core inflation limited the upside. The core inflation rate accelerated from 5.5% to 5.6%, raising uncertainty over whether the Fed can hit the pause button.

According to the CEM FedWatch Tool, the probability of a 25-basis point interest rate hike fell from 72.9% to 68.7%. The fall was modest, reflecting sentiment toward the US labor market and reaction to the core inflation figures.

The Market Movers

It was a mixed Wednesday for the auto sector. BMW rallied by 1.74%, with Mercedes-Benz Group and Volkswagen seeing gains of 0.67% and 0.02%, respectively. However, Continental and Porsche ended the day with losses of 0.45% and 0.60%, respectively.

It was also a mixed session for the banks. Commerzbank fell by 1.24%, while Deutsche Bank ended the day up by 0.32%.

The Day Ahead for the DAX

It is a busier day ahead on the economic calendar. Finalized German inflation and euro area industrial production figures will draw interest this morning. A better-than-expected rise in industrial production would deliver support.

However, US wholesale inflation and jobless claims will likely garner more interest. Hotter-than-expected producer price index figures would support a Fed interest rate hike in May.

While the stats will influence, investors will also respond to the overnight FOMC meeting minutes. Within the FOMC meeting minutes, staff expect the recent banking developments to trigger a mild recession this year before recovering in the subsequent two years.

Earlier this morning, trade data from China provided modest support following an unexpected surge in exports. Exports jumped by 14.8% in March versus a forecasted 7% decline. As a result, the dollar trade surplus narrowed from $116.88 billion to $88.19 billion. Economists forecast a narrowing to $39.2 billion.

DAX Technical Indicators

The DAX has to move through the 15,733 pivot to target the First Major Resistance Level (R1) at 15,798. A return to $15,750 would send a bullish signal. However, the DAX would need US stats and central bank commentary to support a bullish session.

In the case of an extended rally, the bulls will likely test the Wednesday high of 15,827 and the Second Major Resistance Level (R2) at $15,892. The Third Major Resistance Level (R3) sits at 16,051.

Failure to move through the pivot would leave the First Major Support Level (S1) at 15,639 in play. However, barring a flight to safety, the DAX should avoid sub-$15,600 and the Second Major Support Level (S2) at 15,574. The Third Major Support Level (S3) sits at 15,415.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,448). 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 (15,448) would support a breakout from R1 (15,798) to give the bulls a run at R2 (15,892). However, a risk-off event would deliver a fall through S1 (15,639) to bring S2 (15,574) into view. A fall through the 50-day (15,448) would signal a near-term bullish trend reversal.

The DAX Futures Sees Red

Looking at the futures markets, DAX was down 9 points, while the NASDAQ mini rose by 20. The Dow mini was up by 1.

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