DAX 40 Edges Higher Despite a Pause in Global Stock Rally

• German ZEW Economic Sentiment Index Falls (Aug): -55.3 vs -53.8 exp.
• Germany Slaps Levy on Households to Spread Pain of Gas Surge.
• Rhine River Levels Remain a Concern.

DAX 40: Edges Higher Despite a Pause in Global Stock Rally

The DAX rallied higher in European trade despite less than impressive German ZEW sentiment data.The July figure printed lower than the lowest point in 2020, a further warning of the bleak economic outlook over the next 6 months. The index is struggling to build on last week’s momentum as the week began with global growth worries out of China and compounded by a larger-than-expected decline in US manufacturing activity.

The German Government has confirmed that households will bear the brunt of surging energy prices as annual costs will rise by about 290 Euros for natural gas. From October, consumers will have to pay an extra 2.419 euro cents per kilowatt hour for natural gas. The blow will be softened by a temporary subsidy for some households. On a positive note, Germany’s gas storage facilities are 76% full, according to data from Federal Network Agency, known as BNetzA.

Understanding Inflation & its Global Impact

A subdued day for German corporates with the exception of HelloFresh SE (HFGG) which continued its rally from yesterday’s positive second-quarter figures. The latest figures for the group beat expectations, with active customer numbers up 4.1% on the year at 8 million. Crucially, the average order value in the U.S. market, which accounts for just over half of total group sales, more than kept pace with inflation, rising 14.2% even after adjusting for the euro’s weakness during the period. The German-based group said it still expects adjusted earnings before interest, taxes, depreciation and amortization in a broad range of around 495 million euros for the full year. Shares were trading at a four-week high, up 2.5% for the session.

With strong technical roadblocks just above the current price, all eyes will be on the 14000 psychological level, which has a host of confluences. A sustained break above (either a daily or weekly candle close) at this stage seems unlikely without any significant catalyst.

DAX 40 Daily Chart – August 16, 2022

Source: TradingView

From a technical perspective, Friday’s weekly candle close saw us post 4 consecutive weeks of bullish price action and higher prices as the bullish rally gained steam. The weekly candle closed without any upside wick indicating buyers were firmly in control. Yesterday’s inside bar hanging man candlestick hinted at continued downside, highlighting the ever-changing market sentiment. We are currently looking to break above the trendline and the key psychological 14000 level, which presents a host of confluences including the 61.8-76.4% fib retracement level, trendline resistance as well as the fact that we have traded below the level since the 10th June 2022. We need a daily candle close above the trendline for a confirmed break higher.

DAX 40 1H Chart – August 16, 2022

Source: TradingView

On a 1H chart, we have seen a push higher of support discussed yesterday at 13740 before creating a new high and closing above the trendline. Given this bullish momentum and 1H price action we could see a repeat of yesterday’s move lower into support before rallying higher as the US session gains steam. I would urge caution regarding the 1H trendline break as it is a daily trendline and would require a daily candle close above to confirm. Immediate support rests around 13850-13830 which could provide would-be-buyers an opportunity, while a 1H candle close below 13830 invalidates the 1H bullish structure and could lead to a further decline.

Key intraday levels that are worth watching:

Support Areas

•13830

•13740

•13660

Resistance Areas

•13950

•14147

•14320

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

Contact and follow Zain on Twitter:@zvawda