The big economic release of the day was the Eurozone Flash CPI estimate for August, and as my colleague Fiona Cincotta outlined, it came in hotter than expected, hitting a record high of 9.1% year-over-year. Despite worries about surging energy prices (up 38% y/y, even before cold winter weather arrives) driving the continent into recession, the ECB will be forced to act aggressively to fight inflation at next week’s monetary policy meeting; indeed, economists at both Goldman Sachs and Credit Suisse are calling for a 75bps interest rate hike after the record inflation figure.
Hopes of higher rates have made the euro the strongest of the major currencies today, but European indices closed notably lower. Germany’s DAX index (Germany 40) is the region’s most important index, and traders have pushed it down to close at its lowest level in six weeks today. Looking at the chart, the DAX has little in the way of support until the 2022 lows in the 12,500 level, and if bulls fail to defend that key area, a continuation toward the October 2020 lows in the mid-11,000s could be next:
Source: TradingView, StoneX
Even if the index manages to bounce off the 12,500 level, sellers will likely pile in on any move above 13,000. Only a confirmed break back above the 200-day EMA near 14,000 would erase the medium-term bearish bias.
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