DAX, Oil Forecast: Two trades to watch

DAX holds steady ahead of inflation data

• DAX pauses after 5-days of losses
• German inflation is set to cool to 4.6% YoY
• DAX has fallen to a 6-month low

The German DAX and its European peers are pointing to a muted open after a five-day losing streak and as investors look ahead to a busy day on the European economic calendar. Releases in focus include German inflation, Eurozone consumer confidence, the ECB's economic bulletin, and several ECB officials are also due to speak.

Expectations are for German inflation to cool to 4.6% from 6.1%. On a monthly basis, inflation is expected to rise 0.3% in line with August.

The data comes as the market believes the ECB has reached the end of its hiking cycle. However, ECB President Christine Lagarde has warned that interest rates will remain high for a longer period of time to tame inflation. German treasury yields reached a 12-year high this week.

Worries over high-interest rates for longer come as the German economic outlook shows signs of deteriorating. Yesterday data showed that German consumer confidence fell for a second straight month, falling to its lowest level since April. Consumer sentiment was lower than expected amid low income expectations and still high inflation, hurting the consumer outlook. Earlier in the week German IFO business sentiment data fell for a fifth straight month.

Looking ahead in addition to German inflation eurozone consumer confidence is expected to fall in September to -17.8 from -16.

Looking ahead to the US session, sentiment could be impacted by jobless claims, US GDP data, and developments surrounding a possible government shutdown.

DAX  forecast – technical analysis

The DAX has been trending lower since the end of July, falling below strong support at 15450 and forcefully below its 200 sma, which, combined with the RSI below 50, supports further downside.

Sellers will need to take out yesterday’s low of 15132 to extend the bearish trend towards the 15000 round number and 14800, the late March low.

Any recovery must retake the 15450 level to negate the near-term downtrend and expose the 200 sma at 15600. It would take a rise above 16000 to create a higher high.

Oil rises to a yearly high after stockpile drawdown fuels tight supply concerns.

• US EIA crude oil inventories fell by 2.2 million barrels
• Cushing storage hub inventories are around historic lows
• Oil is in overbought territory

Oil prices surged high yesterday, jumping over 3.6% in the best daily performance since the start of June. Oil prices are on track to book a fourth straight month of gains, with the price hitting a yearly high.

Oil is pushing higher after a drop in US crude stockpiles, which have added to mounting worries over tight global supplies. US crude stockpiles fell by 2.2 million barrels last week to 416.3 million barrels. This was well below the 320,000 barrel draw that analysts had been expecting.

Meanwhile, crude stocks at the Cushing, Oklahoma storage hub fell by 943,000 barrels across the week to less than 22 million barrels, the lowest level since July 2022.

Stockpiles at Cushing have fallen to historic lows and are close to the minimum operating level, adding to concerns about tight supply in the market.

The crude drawdowns follow production cuts of 1.3 million barrels a day by Saudi Arabia and Russia, which are set to continue until the end of the year. OPEC+ will meet next week to discuss output.

Also supporting the oil prices is a cautious optimism surrounding the Chinese economy. Data yesterday showed that Chinese industrial profits rose for the first time since the second half of last year, rising 7.2% in August compared to a year earlier. The improving data from China comes as the government has ramped up measures to support the economy in recent months.

These tailwinds have overshadowed concerns that higher interest rates for longer in the US, the world’s largest consumer of oil, could hurt the demand outlook.

Looking ahead fed speakers could give further clues over the outlook for the future path of interest rates.

Oil forecast – technical analysis

Oi has risen for a third straight session, rising above the 93.40 resistance, the November high,97.50, and opening the door to  97.50, the August 2022 high. The RSI is deep in overbought territory so oil bulls should be cautious and there is some RSI bearish divergence which suggests that upside momentum could be fading.

Buyers will need to rise above 94.60, the daily high, to extend gains to 97.50.

Support can be seen at 93.30, the November 2022 high, with a break below here opening the door to 92.40 the September 19 high. A break below here brings 90.00, the psychological level, and the 20 sma at 88.90 into play.