DAX, Oil Forecast: Two trades to watch

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Fiona Cincotta
By :  ,  Senior Market Analyst

DAX falls as risk sentiment sours ahead of key data tomorrow

  • Fears of high rates for longer hurt sentiment
  • Eurozone economic sentiment is expected to rise to 96.2
  • DAX falls below 18635 support towards the 50 SMA

Dax is falling lower for a third straight day as risk-off engulfs the markets. A weak U.S. Treasury auction, stronger-than-expected data, and hawkish Fed commentary have sent jitters across financial markets.

The DAX closed over 1.1% lower on Wednesday and is extending those losses today. A lack of fresh catalysts means the high-for-longer rate narrative continues to depress sentiment.

Attention is on eurozone consumer confidence, which is expected to hold steady at -14.3, and economic sentiment is due to tick higher to 96.2 from 95.6. The date comes after German consumer confidence rose to its highest level in over a year yesterday. However, German inflation was also hotter than expected, rising to 2.8% YoY in May from 2.4% in April.

The data will unlikely knock the ECB off track for its June rate cut. However, recent data raises questions over the ECB’s future path for rate cuts post-June.

Looking out the US session, US GDP and jobless claims data could provide more clues about the health of the US economy and the Fed's ability to cut rates this year. Robust data could see the market push back rate cut expectations, pulling stocks lower.

However, tomorrow will be the actual litmus test for the markets with the release of Eurozone CPI and US core PCE data, the Fed’s preferred gauge for inflation.

DAX forecast – technical analysis

The DAX has broken aggressively below the 18635 support as it continues to correct lower from the ATH of 18928 reached earlier in the month.

Sellers supported by the RSI below 50 and the bearish MACD could look to test support at 18300, the 50 SMA, which has been guiding the DAX higher since the start of the year. Below here, 17,800 comes into focus. Taking out this support creates a lower low.

On the upside, any recovery would first need to rise above 18635 to bring 18928 and free all-time highs into focus.

DAX forecast chart

Oil falls on demand outlook concerns.

  • High rates for longer could dampen economic growth
  • API data showed a larger-than-expected draw
  • OPEC+ meeting is on June 2nd

Oil prices are falling amid a stronger U.S. dollar and as traders remained on edge ahead of US inflation data and the OPEC+ meeting later this week.

 Oil prices fell around 1% yesterday and are extending those losses today due to concerns that borrowing costs may stay higher for longer, which could dampen economic growth and hurt the outlook for oil demand.

The risk-off mood in the market, on concerns of higher rates, has overridden the larger-than-expected drawdown in US crude inventories, according to the API data.

The data showed that oil and gasoline inventories fell last week. Oil inventories were down 6.49 million barrels in the week ending May 24th, and gasoline inventories were down 452,000 barrels. Expectations had been for a draw of 1.9 million barrels and a 1 million barrel increase in gasoline.

Data from the Energy Information Administration is due later today.

Meanwhile, US GDP data will also be in focus. Stronger-than-expected growth in the first quarter could exasperate fears of high interest rates for longer, weighing on oil prices.

The data comes ahead of the OPEC+ meeting on June 2nd. The meeting has been changed from an in-person event to an online event, suggesting that a broad agreement has already been reached. The OPEC+ group is expected to extend voluntary output cuts of 2.2 million barrels per day.

Get our exclusive guide to oil trading in Q2 2024

Oil forecast – technical analysis

After recovering from the 76.15 low, the oil price rebounded to 80.60 before running into resistance.

Oil failed to hold above the 200 SMA and is testing support of the multi-month rising trendline support and the 100 SMA at 79.00. A break below here could bring 77.00 into focus ahead of 76.15.

Should buyers successfully defend the rising trendline support and retake the 200 SMA. A rise above 80.60 creates a higher high, bringing 81.60 the May high into play ahead of 84.30.

oil FORECAST CHART

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