USD, DAX cling to support ahead of PMIs: European open – 24/10/2023

Asian Indices:

Australia's ASX 200 index rose by 8.9 points (0.13%) and currently trades at 6,853.00
Japan's Nikkei 225 index has fallen by -233.2 points (-0.75%) and currently trades at 30,760.86
Hong Kong's Hang Seng index has fallen by -112.8 points (-0.66%) and currently trades at 17,059.33
China's A50 Index has fallen by -38.3 points (-0.33%) and currently trades at 11,647.97

UK and Europe:

UK's FTSE 100 futures are currently down -20.5 points (-0.28%), the cash market is currently estimated to open at 7,354.33
Euro STOXX 50 futures are currently down -8 points (-0.2%), the cash market is currently estimated to open at 4,033.75
Germany's DAX futures are currently down -30 points (-0.2%), the cash market is currently estimated to open at 14,770.72

US Futures:

DJI futures are currently up 45 points (0.14%)
S&P 500 futures are currently up 8.5 points (0.2%)
Nasdaq 100 futures are currently up 40.75 points (0.28%)

The US dollar is on the ropes as we enter this session, but it’s likely all down to yields as to where the dollar goes next. And we have enough data in the pipeline to make it go one way or the other. I think we’d all be relieved to see yields pull back further, and that could happen if the Middle East conflict doesn’t escalate and a ground assault it delayed further. Today’s flash PMIs could set expectations for the US GDP report, and if the data leans far enough one way it could prompt a strong dollar rally or breakdown with the Fed in a blackout period.

But it’s interesting to see that the US dollar index has pulled back to just beneath the January high in today’s Asian session. With such a busy calendar, I am equally open to it rallying or falling from current levels. It’s plausible that the dollar is near to completing an ABC correction and could shoot higher with yields, just as it is that yields and the dollar need a much deeper retracement from their peaks. Either way, the US dollar and yields remain markets to monitor this week.

1-day implied volatility levels are elevated relative to their 20-day average for EUR/USD, GBP/USD and NZD/USD. We have a host of data in today’s European and US session, with UK wage and employment data and German consumer sentiment kicking off at 07:00 BST before the flash PMIs for Europe, UK and the US roll in between 09:00 and 14:45. Also take note that RBA’s new governor Michelle Bollock also speaks at 09:00, and ECB president Lagarde hits the wires at 13:30.

Whilst Lagarde is unlikely to revel too much today ahead of Thursday’s meeting, we might get some more insight from RBA’s Bullock as to the significance of tomorrow’s inflation report, which could become a proxy for a November hike if it comes in too hot.

Events in focus (GMT+1):

07:00 – UK average earnings, employment change
07:00 – German GfK consumer sentiment
08:30 – German flash PMIs (manufacturing, services, composite)
09:00 – RBA Governor Bullock speaks
09:00 – Eurozone flash PMs (manufacturing, services, composite)
09:30 – UK flash PMIs (manufacturing, services, composite)
13:30 – ECB president Lagarde speaks
14:45 – US flash PMIs (manufacturing, services, composite)

DAX technical analysis (weekly chart):

If I look at the weekly and monthly charts of the DAX, a simple case could be made that it is unlikely to have reached the end of its bearish run from its all-time high. Not only is its -11.5% drawdown from the record high shallow by historical standards, but the fall from the peak has happened faster than the rise to its peak from current levels. This suggests a ‘bearish translation’, and hints towards a longer-term top in its cycle. However, markets don’t travel in straight lines and a bit of mean reversion could be expected along the way.

DAX technical analysis (daily chart):

An established bearish trend is clearly visible on the daily chart of the DAX. Bearish momentum is also increasing with each leg lower. However, its decline stalled around the December on Monday and formed a Doji to show a hesitance to break immediately lower. A slight bullish divergence is also forming with the RSI (14), after it reached the oversold level back in early October.

I can understand why some may not want to be bullish at these levels, but at the same time I suspect bears may want to be cautious being ‘caught short’ at these lows. At the very least, I suspect some mean reversion is due, which could entice a fresh round of selling if it can return to the 15k area ahead of its next bearish breakout. A break beneath 14,600 assumes bearish continuation.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.