Oil, DAX outlook: Two Trades to Watch

Oil falls on China growth concerns

• GS cuts China’s growth forecast
• US oil & natural gas rig count falls for a 7^th week
• Oil tests support at $71.00

Oil prices are heading lower after gains in the previous week, amid rising concerns over the growth outlook in China.

While WTI oil rose over 2% last week following two straight weeks of losses; however, prices have tumbled to 1% ahead of the European open. Questions over the strength of China's economy overshadowed OPEC+ output cuts and a 7th straight decline in the number of oil and gas rigs operating in the US.

Goldman Sachs cut its forecast for China's economic growth to 5.4% from 6%. It also lowered its 2024 growth forecast to 4.5% from 4.6%. Goldman Sachs has joined a growing list of major banks that have cut the outlook for Chinese growth, citing weak confidence and concerns over the property market.

Weaker growth in China, the world’s largest oil importer, is hurting the oil demand outlook.

Attention will now turn to the PBoC decision tomorrow, where the central bank is widely expected to cut the primary loan rate. This comes after several rate cuts in recent days as authorities look to stimulate the economy.

Still, it can’t be ignored that China’s throughput rose in May to its second-highest level on record, which helped to drive gains last week.

Also, Baker Hughes rig data showed that working oil and gas rigs in the US fell for a seventh straight week. This is often considered an early indicator of future output.

Oil outlook- technical analysis

Oil has formed a series of lower highs but continues to find support at 67.00. After rebounding off 67.00 last week, the price has struggled to move significantly above the 20 sma at 71.00. The RSI is neutral, giving away few clues.

Should sellers successfully defend the 20 sma, immediate support can be seen at 70.00. Sellers need a break below 67.00 to create a lower.

Buyers will look for a rise above 73.35, last week’s high, and the 50 sma to expose the 100 sma at 74.63 and create a higher high.

DAX eases from record highs

• DAX hit a record high last week
• China growth, Fed Chair Powell testimony & EZ PMIs are in focus this week
• Bearish RSI divergence suggests reversal could be on the cards

After booking gains of over 2.5% last week, the rally showed signs of running out of steam on Friday. The DAX hit a new all-time high before closing the day lower.

As the new week kicks off, the market mood remains fragile amid concerns over the economic recovery in China and ahead of a semi-annual testimony by Federal Reserve Chair Jerome Powell before Congress later in the week.

The global market rallied hard last week after the Fed skipped a June rate hike but pointed to two more hikes to come after the ECB raised rates while signaling further hikes. However, the market was optimistic that the hiking cycle would soon be over.

There is no high-impacting German or European data due for release today. The calendar is relatively quiet until PMIs on Friday. Today is the Juneteenth holiday in the US which could mean that volumes remain light across the session.

DAX outlook – technical analysis

While the DAX pushed to a record high last week of 16430, the run higher appears to be running out of steam. The long upper wick on Friday’s candle, combined with the RSI divergence, suggests a reversal could be on the cards.

Sellers could look for a break below 16100, the early June high, and 15930, the confluence of the multi-month rising trendline and the 50 sma.  A break below here brings 15700, the June low, into focus. Should bears break down this barrier, then deeper losses could be on the cards.

Buyers will look for a rise above 16430 for fresh record highs towards 16500 and 17000 round number.