DAX rises with the Fed in focus & ahead of German economic sentiment data
- The Fed could cut rates by 50 basis points
- German ZEW economic sentiment is expected to deteriorate to 17.1
- DAX recovers from 18,200, looks to 19,000
The DAX and its European peers are inching higher on Tuesday as investors wait cautiously for tomorrow's Federal Reserve interest rate decision. The decision could see the central bank kick off its monetary easing cycle with an outsized rate cut.
Markets are currently pricing in a 65% probability that the central bank will cut rates by 50 basis points.
Meanwhile, economic data from Germany will be monitored closely. German economic sentiment is expected to deteriorate in September. The ZEW economic sentiment gauge is expected to be full to 17.1 in September, down from 19.2 in August.
Weaker-than-expected data could raise concerns about the health of the eurozone's largest economy and fuel fears of a recession. The data comes after the ECB downwardly revised its growth forecast for the region in last week’s meeting.
Looking ahead, US retail sales could also influence sentiment. Retail sales are expected to rise 0.2% in August, down from a 1% increase in July. Stronger-than-expected data could ease concerns of a hard landing, given that private consumption accounts for over 60% of the US economy. Upbeat retail sales could help equities higher. However, a decline in retail sales could make the market jittery about a hard landing ahead of tomorrow's Fed rate announcement.
DAX forecast – technical analysis
The DAX recovered from the 18,200 low and rebounded higher. The upward-sloping 100 SMA is guiding the price northwards. This, combined with the RSI above 50, keeps buyers hopeful of further gains. However, buyers will need to rise above 19000 to fresh record levels to create a higher high.
For now, the rally appears to lack conviction to reach record levels as the price struggles to move beyond 18700. Failure to push above 18700 could see a correction lower and a retest of support at 18,200 and 18,000. Below here, the 200 SMA comes into focus at 17800.
Oil rises on rate cut optimism, supply concerns
- A large rate cut could boost growth & therefore oil demand
- Some production remains offline in the Gulf of Mexico
- US API inventory data is due later
- Oil recovers above $70
Oil prices are extending their recovery, moving back above $70.00 a barrel, boosted by optimism surrounding US rate cuts and ongoing supply disruption in the Gulf of Mexico.
Markets are increasingly expecting the Federal Reserve to kick off its easing cycle with a 50 basis point cut. A low interest rate environment is supportive of economic growth and, therefore, the oil demand outlook.
Meanwhile, 12% of oil production and 16% of natural gas production remain offline in the aftermath of Hurricane Frances Francine, keeping the supply side of the equation tight.
These factors are offsetting concerns over the demand outlook in China. Following more weak data from the world's largest oil importer over the weekend, Child China's oil refinery output fell for a fifth month in August amid declining fuel demand and weak export margins.
Attention is now turning to US crude in ventures, which are expected to show a 200-barrel draw in the week ending September 13th. A larger-than-expected draw could help lift oil prices higher.
Oil forecast – technical analysis
Oil trades below trades below its downward-sloping trendline and below its 200 SMA. The 50 SMA has crossed below the 200 SMA in a sell signal.
The price has recovered from 65.50, the 2024 low, rising back above 70. Buyers will need to extend gains above the 71.50-72.50 zone to negate the near-term downtrend. A rise above the 200 SMA at 77.50 could see buyers gain momentum.
Failure to rise above the 71.50 -72.50 zone will leave sellers in control, and a move back toward 67.00 could be in the cards. Below here, 65.50 comes into focus.
