DAX, Oil Forecast: Two trades to watch

Fiona Cincotta
By :  ,  Senior Market Analyst

DAX inches higher after weak German retail sales, EZ GDP, CPI up next

  • German retail sales fell -0.8% MoM vs 0.5% Expected.
  • Eurozone Q3 GDP 0% Exp. vs 0.1% Previously
  • Eurozone CPI 3.2% Expected vs 4.2% Previously
  • DAX must take out support at 14600 to extend the bearish trend

The DAX and its European peers are heading for a modestly positive open, building on gains from yesterday and following on from an upbeat session on Wall Street. However, the index is still set to fall over 4% across October, its third straight monthly decline.

The market has looked past weak data from China and weak German retail sales. German retail sales unexpectedly fell in September, dropping -0.8% MoM after falling -1.2% in August. Expectations had been for a 0.5% rise.

The data comes after GDP figures yesterday showed a contraction of the eurozone's largest economy in Q3 along with cooling inflation. Recent German data will do little to change the view that Germany is the sick man of Europe.

Today, attention is turning to eurozone GDP data, which is expected to show that the eurozone economy stalled in the July to September period after seeing growth of 0.1% QoQ in Q2. Recent PMI data has pointed to lackluster growth in the region, and a weaker-than-expected GDP reading could fuel concerns over a recession in the second half of the year.

Meanwhile, eurozone inflation data is also in focus and is expected to cool to 3.2%YoY in October, down from 4.3%. However, core inflation, which strips out volatile items such as food and fuel, is expected to remain sticky at 4.2%, down from 4.5%. Sticky inflation could fuel expectations that the ECB will need to keep interest rates high for longer, keeping businesses and consumers under pressure.

Earnings will also remain in focus with numbers due from BASF.

Looking ahead to the US session, consumer confidence is expected to fall to 100 from 103. Weaker consumer sentiment often goes hand in hand with slower spending and should morale fall more than expected risk appetite could take a hit.

DAX forecast – technical analysis

The DAX continues to trade caught between 14600, the October low, and 15000, last week’s high. The RSI below 50 and the 50 sma looking to cross below the 200 sma keep sellers hopeful of further downside.

Sellers must take out 14600 to extend losses to 14450, the March low.

A rise above 15000 could encourage buyers to retake the 20 sma at 15050 and test resistance at 15300 the falling trendline, dating back to early August.

dax forecast chart

Oil rises as supply worries overshadow weak Chinese data

  • Middle East supply concerns rise as Gaza ground assault continues
  • Chinese manufacturing PMI contracts
  • Oil sees support at 82.00

Oil prices are rising after falling over 3% in the previous session as concerns over supply, fueled by the conflict in the Middle East, overshadow dismal Chinese data.

Oil prices fell sharply on Monday despite an escalation of Israel's attacks on Gaza as the markets didn't see the conflict broadening to include oil-rich nations. While Middle East developments have yet to affect oil, as the ground invasion intensifies, the risk of involvement from Iran rises, fueling tight supply concerns.

Meanwhile, data from China showed weaker-than-expected manufacturing and non-manufacturing PMI's fuelling fears of slowing demand in the world's second-largest oil consumer.

Chinese manufacturing activity contracted as the PMI fell to 49.5, while non-manufacturing activity growth slowed significantly to 50.6 in October, down from 51.7. The data suggests that the recent support measures from Chinese authorities have been insufficient to maintain growth, and further measures may be needed.

Looking ahead, investors will be watching the Federal Reserve's two-day policy meeting as it kicks off later today, as well as API weekly crude stockpile data.

Oil forecast – technical analysis

Oil failed to rise above the 20 sma and has rebounded lower, testing support around 82.00, the level that sellers need to break below in order to test 80.70, the October low. A break below here exposes the 200 sma at 78.00, which was also the August low.

Meanwhile, buyers could look for a rise above the 20 sma at 84.70 to expose the 50 sma at 86.20 and the falling trendline resistance at 87.35.



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