DAX, Oil Outlook: Two Trades to Watch

Fiona Cincotta
By :  ,  Senior Market Analyst

DAX falls after hawkish Fed minutes, Eurozone retail sales up next

  • FOMC minutes were more hawkish than expected
  • Eurozone retail sales are set to rise 0.2% MoM
  • DAX falls below 50 sma

The DAX, along with European markets, are heading for a lower open as investors continue digesting the minutes from the June FOMC meeting and look ahead to eurozone retail sales.

The minutes were more hawkish than expected and showed that the decision to pause rate hikes in June was not quite as unanimous as expected, with several fed officials keen for a 25 basis point rate hike.

The minutes they were confirmed that the absence of a hike in June was a skip, with officials looking to hike rates again in July and beyond as concerns over sticky inflation, which is unacceptably high.

Concerns that prolonged rate hikes will tip the US economy into recession are weighing on sentiment, hurting demand for riskier assets.

However, there were also signs of divisions within the committee over the pace and extent of further hikes, as interest rates have been lifted to a level that is considered restrictive.

The Fed will be more data-dependent than before, which means that the market will be more data-dependent. Later in the US session, US ISM services PMI is due to be released, along with ADP payrolls, jobless claims, and Challenger job cuts ahead of tomorrow's NFP report.

Ahead of that, attention will be on Eurozone retail sales, which are expected to rise 0.2% YoY. The data comes as concerns mount over the health of the economy in Europe after the composite PMI contracted in June to 49.9, down from 52.8 in May.

However, there was some good news after German factory orders came in well ahead of forecast at 6.4% MoM in May, defying expectations of a 0.4% fall.

DAX outlook – technical analysis

While the DAX has risen over 35% from its October low, the rally is running out of steam. The price has fallen out of the multi-month rising channel breaking below its 20 & 50 sma, which, combined with the RSI below 50, keeps sellers hopeful of further losses.

Support can be seen at the 100 sma 15700 and 15625, the May low. A break below here opens the door to 15500, the April low.

On the upside, buyers will look for a rise above the 50 sma and round number of 16000, ahead of 16100, the rising trendline support and July high.

dax outlook chart

Oil steadies after solid gains; EIA data due

  • Oil rose after delayed reaction to output cuts
  • EIA data in focus amid peak driving season
  • Oil breaks out above the falling triangle

Oil prices are holding steady after two days of solid gains. Oil prices jumped around 3% on Wednesday in a post-holiday response to supply cuts that Saudi Arabia and Russia announced at the start of the week.

The 1 million bpd voluntary cut by sat Arabia and 500,000 bpd by Russia shows that oil cooperation as part of the OPEC+ alliance it's going strong.

At the meeting in Vienna, the Saudi energy minister Prince Abdulaziz bin Salman said, “We will do whatever is necessary, whatever it takes,” in a show of determination to support the oil market.

While supplies are tightening, concerns over the economic outlook and slowing oil demand are keeping gains in oil capped.

Weaker data from China has raised worries over the recovery losing momentum. Meanwhile, the FOMC minutes were more hawkish than expected, raising the prospect of more rate hikes from the Fed, which could mean slower economic growth or possibly a mild recession in the coming quarters, which is bad news for the oil demand outlook.

According to the API, oil stocks fell by 4.4 million barrels last week while gasoline and distillate inventories rose. The data comes after a 2.4 million barrel draw in the prior week.

Attention will now turn to EIA inventory data. Given that the 4th of July marks the peak US travel season, this week’s inventor report could be more in focus than usual.

Oil outlook – technical analysis

Oil has broken out above its descending triangle, and the 50 sma, combined with the RSI above 50, keeps buyers hopeful of further upside.

Buyers will look for a rise above yesterday’s high to expose the 100 sma at 73.65 ahead of 75.00, the June high.

On the downside, support can be seen at 71.20, the 50 sma, and 70.40, the falling trendline support. However, sellers need a break below 67.00 to create a lower low.

oil outlook chart


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