DAX, Oil Outlook: Two Trades to Watch

DAX rises cautiously ahead of IFO sentiment data

The DAX is edging higher after booking losses of 3.3% in the previous week after hawkish central banks and economic indicators her sentiment.

A hawkish testimony from Federal Reserve chair Jerome Powell and a surprise 50 basis point interest rate hike by the Bank of England sent warning signals to investors and dampened expectations that monetary policy tightening could ease as the economic outlook deteriorated.

German PMI data on Friday showed that manufacturing activity fell to 41 from 43.2, while the service sector PMI fell to 55.1, down from 57.2, missing forecasts of 56.2. The level 50 separates expansion from contraction.

The data fueled expectations that the German recession could be more prolonged and deeper than initially feared.

Attention now turns to German business climate index numbers, which are expected to draw interest today and could fuel recession worries. Expectations are for the German IFO business climate to deteriorate to 90.7 in June from 91.7.

Investors will also be watching ECB commentary throughout the day, with ECB president Christine Lagarde and board member Elizabeth McCall due to speak. While a rate hike in July is a given, the path of rate hikes in September is less clear.

DAX outlook – technical analysis

The DAX broke out below its ascending channel for the first time since October last year before running into resistance at 15730, last week’s low. The break below the rising trendline, coupled with the RSI below 50, keep sellers hopeful of further downside.

Sellers need to break below 15625 the May low to see a deeper selloff towards 15250, a level that offered support in February, and 15000, the psychological level.

On the upside, a rise back above 16000 the falling trendline resistance could bring 16430, the all-time high, back into play.

Oil edges higher after the Russian rebellion.

Oil prices are edging slightly higher on Monday after losing 3.6% across the previous week, as investors react mildly to an abortive attempt to take power from President Putin.

Russian mercenaries made a short-lived rebellion on Saturday, demanding the removal of Russian military commanders in charge of the Ukraine war.

While the move failed, it raised questions over President Putin’s grip on power, stability in the country, and what this means for oil supply. So far, trades are hesitant to draw further conclusions.

Concerns over the global economic outlook amid ongoing hawkish central banks could continue to limit the upside in oil. Global slowdown fears ramped up after hawkish Fed Chair Powell’s commentary last week and after several central banks hiked interest rates again next week.

News that the S&P also cut China’s growth outlook to 5.2% for 2023, down from 5.5%, could also keep pressure on oil prices. The S&P is the latest in a growing list of banks and institutions that has downwardly revised growth for China, the world’s largest oil importer.

Oil outlook – technical analysis

Oil made another failed attempt to rise above its 50 sma at 72.50, sending the price rebounding lower before finding support again around 67.00. The 67.00 support has been tested several times across the past month. The long lower wick on the candle suggests that dip buying took place at those lower levels.

Sellers will need to break below 67.00 to extend the bearish trend and bring 63.60 the 2023 low into play.

On the flip side, buyers see immediate resistance at 70.50 the 20 sma, with a rise above here bringing 72.50 back into the target. Buyers need to rise above here to create a higher high and to bring 75.00 the June.