DAX 40 in the Red as Markets Approach the Week with Caution

• The DAX Continues Downward Trajectory as Market Mood Remains Cautious.
• Catalyst Maybe Needed to Breach YTD Lows. FOMC to Oblige or Disappoint?
• Volkswagen (VOWG_p) Targeting a Valuation of up to 75billion Euros ($75.1 billion) for its Porsche IPO

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Sep 19

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DAX 40: in the Red as Markets Approach the Week with Caution

The DAX traded lower in European trade as losses continue to mount since last week’s trendline rejection. We have since had declines of +/- 1000 points with the YTD lows now firmly in sight. The cautious mood seen to start the week is down to a host of central bank meetings to come as well as Eurozone PMI on Friday.

The Asian session provided brief hope that we may see a positive open for equities as the People’s Bank of China announced a cut to the repo rate and increased cash injections into the economy. This comes as the country grapples with continued covid lockdown interruptions as the central bank looks to boost growth in one of the key growth regions globally. Implications of China restoring some semblance of economic normality could be a huge boost to global markets as they remain the second largest economy in the world.

Wednesday brings the major event risk of the week in the form of the US Federal Reserve meeting. Consensus has a 75bp priced in at a probability of 80%. Should the Fed deliver a 75bp hike on Wednesday coupled with bullish forward guidance and a year-end rate higher than 4.25%, I expect equities to tumble with new yearly lows a possibility. Alternatively, should we get a 75bp hike followed by dovish comments and a year-end rate target around the 4.00-4.25% we should see equities and indexes rally higher.

Economic data for the eurozone is sparse for the week with a host of speeches by European Central Bank (ECB) members expected to be the key. Friday’s PMI print is the first glimpse of business activity in the eurozone for the month of September. The PMI print has already spent two months below the 50 level that separates contraction from expansion as recession fears for the region continue to grow. A recent Bloomberg poll of Economists now has the probability of two straight quarters of contraction at 80%, up from 60% in its previous survey. The PMI data is expected to be a key indicator as to how far from an official recession we are, something which could further weigh down the index.

On the corporate front, Volkswagen (VOWG_p) stock rose 1.1% following the news the auto giant is targeting a valuation of up to 75 billion euros ($75.1 billion) for its Porsche IPO. The German carmaker said late Sunday that the deal is going ahead at a time of deep market upheaval with commitments from key investors providing a boost. Qatar Investment Authority, Norway’s sovereign wealth fund, T. Rowe Price and ADQ are set to subscribe to preferred shares of as much as 3.7 billion euros, the manufacturer said.

For all market-moving economic releases and events, see the DailyFX Calendar

DAX 40 Daily Chart –September 19, 2022

Source: TradingView

From a technical perspective, we had a massive shooting star candle close on the weekly that engulfed the previous week as well. We saw an +/- 800 point drop last week with todays declines taking the total drop to just over 1000 points from highs around 13550.

On the daily timeframe we continued to push down this morning before finding support at the September 5th low around 12590. On an intraday view this level could hold the key with regards to the YTD low (12377), as a close below could open up a retest of the YTD low or a clean break lower and new lower low. This would be keeping with the overall structure on the daily timeframe. We currently trade back below the 20, 50 and 100-SMA while a pullback to retest the MA’s cannot be ruled out as we approach the FOMC meeting.

Key intraday levels that are worth watching:

Support Areas

•12590

•12450

•12377

Resistance Areas

•12787

•12912

•13000

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Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda