Friday 27th September

Today we found the short-term price action turning bullish again after yesterday’s break through the previous days high. Today we have already broken yesterday’s high. If we look left we can see that this 350 zone was a previous value area from Monday afternoon and Tuesday morning. I would like to see that area fall and price continue with its momentum. 

Next week the algorithm should return which leads to additional DAX-related signals after successfully completing some much needed maintenance. Hear more about that next week.

For today, let’s keep up to date with the releases and the news as the week draws to a close.

A range of ECB speakers will also draw attention. We should watch in particular what Chief Economist Philip Lane has to say at 16.30 CEST today, as sceptical voices about the ECB package have grown louder. In a Handelsblatt interview yesterday, he already hinted that the ECB has leeway to cuts interest rates further.

In the euro area, today’s highlight will the Commission’s economic confidence indicators. PMIs and Ifo painted a gloomy picture about the state of the euro area economy. In today’s release, in particular, look out for whether service sector confidence is sliding further.

In other news, after the surprising resignation of ECB Board member Sabine Lautenschläger yesterday, the German finance ministry announced they will soon propose a “suitable candidate” to succeed her. Both Isabel Schnabel, member of German Council of Economic Experts, and Claudia Buch, vice-president of the Bundesbank, have been mentioned as possible successors. With German monetary hawks in retreat, hope for a similar shift in the fiscal policy sphere gained traction again after former finance minister and renowned fiscal hawk Wolfgang Schäuble seemingly endorsed a fiscal policy rethink (see Reuters) and Chancellor Angela Merkel admitted at a conference that politicians must ensure, through with sensible reforms and finance policies, that the ECB is not overburdened. Still, we should probably remain sceptical of a sizeable policy shift on the fiscal front from Germany in the near term, not least because the climate package unveiled on Friday was generally received with disappointment.

Method Price
VWAP 12286
Point of Control 12294
Value Area High 12303
Value Area Low 12277
Pivot 12290
R2 12414
S2 12167

Thursday 26th September

Yesterday’s DAX price action was pretty bearish. The price failed to make any major bullish progress past the daily pivot in the early morning, before collapsing through the overnight lows, closing the gap, breaking the previous day’s low and then finding an interesting camarilla pivot, twice.

That camarilla pivot level at 12146 (dashed line at lows from yesterday) acted as support twice, creating a double bottom. That DB provided the platform for the price to bounce.

As for today, as is so often the case with Dax, we have an almost opposite day. I say that because we gapped lower (instead of higher), then failed to make much progress below the pivot (instead of above) and have now broken above the overnight highs (instead of the lows), closed the gap and now challenging yesterday’s high (instead of the lows).

This kind of price action is indecisive, but it is at least showing signs of momentum again. Which is what we want.

DAX Major Trend

12388 is the area to watch for now, with the DAX putting in a consecutive series of lower lows and lower highs. It’s also the composite high volume area.

DAX Minor Trend

Watch the resistance zone as this was tested again today and there’s another failure. 

Method Price
VWAP 12202
Point of Control 12180
Value Area High 12235
Value Area Low 12138
Pivot 12228
R2 12381
S2 12074

Last night, ECB board member Sabine Lautenschläger resigned (by 31 October 2019). The press statement does not provide an explanation for her resignation; however, we note that the ECB just launched a stimulus package and given that she was among the most hawkish in the governing council, there may be a connection. The near-term monetary policy implication is that the ECB will have only 5 board members until a replacement is found. Her replacement is likely to be less hawkish than she is. Last time a board member resigned was in 2011 (Jurgen Stark) due to the launch of non-standard measures taken at the time.

Wednesday 25th September

 

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DAX Breaks To The Downside 

So why are we seeing these moves now? I think it’s a combination of factors, but ignoring the technicals for now we know that yesterday, the UK Supreme Court ruled that the prorogation of Parliament was unlawful meaning the Parliament will return later today. According to our UK economist, this ruling is a clear blow to PM Boris Johnson’s authority (and not least his chief advisor Cummings) yet no game changer for the Brexit end-game as the Delay Bill has already been passed. We think the most important element for markets is whether the Brexit deadline is delayed or not and we do not believe this ruling has affected that probability. This would have had some impact on the surrounding markets.

Impeachment concerns have risen in the US as a whistle blower within the intelligence community claims that President Donald Trump repeatedly pressured Ukraine’s President to investigate Hunter Biden, former Vice President Joe Biden’s son, on a phone call back in July. Under the constitution the President can be impeached for “treason, bribery, or other high crimes and misdemeanours”, which is open to interpretation. Overnight, House speaker Nancy Pelosi announced a formal impeachment inquiry into the President presumably enlisting a foreign power to help influence presidential elections. Trump has denied all wrongdoings and stated he will release the phone call transcript later today. Yesterday, US stocks reacted negatively to this new political risk, also reflected in current ‘red’ Asian indices. This morning, however, US equity futures are roughly flat. Trump is only the fourth President to face impeachment proceedings; the last was Clinton in 1998. So far no President has been directly removed (Nixon resigned). The impeachment enquiry will start in the House of Representatives where only a simple majority is needed to bring charges forward (Democrats need no Republican votes here). This could lead to a trial in the Senate where the Chief justice of the US Supreme Court presides and where a two-thirds majority is needed to convict the President. Meanwhile a Senate vote would likely require c.20 Republicans to vote against their own party making it less likely unless new information reveals and confirms more severe wrongdoings by the President.

Method Price
VWAP 12302
Point of Control 12337
Value Area High 12375
Value Area Low 12262
Pivot 12283
R2 12449
S2 12118

Tuesday 24th September

At the moment, there is not very much technical analysis to discuss; we are range bound and the market is currently happy doing business in this zone. But that creates poor opportunities for traders like me that need momentum to execute trades. So whilst trading the DAX right now is not exciting for me, I am confident that we will see some changes soon. Yesterday, preliminary PMIs from Europe surprised negatively as German manufacturing and services PMI headed lower and manufacturing PMI hit its lowest level since 2009. In manufacturing, the picture is still one of a weakening order situation and deteriorating employment expectations. Probably more worrying is that the services sector is feeling the pinch as well, with incoming new business falling into contractionary territory for the first time since December 2014.

Today’s calendar is a blend of politics and data. First, the German IFO will be closely monitored. Both the expectations and current situation components have been on a falling trend for the past year and I am very interested to see if it will follow the more upbeat Zew expectations from last week or reflect the weak PMIs we saw yesterday.

In the UK, the Supreme Court is expected to rule on Prime Minister Boris Johnson’s suspension of Parliament at 11.30 CEST.

Asian equity markets and US stock futures have remained in green territory, while shares climbed in Japan, where markets opened after a holiday. Previously, US stocks struggled to rise, ending slightly in the red, while oil and gold slid after Reuters reported that Saudi Arabia had restored more than 75% of the crude output lost after the recent attacks and could return to full volumes by early next week. However, the Wall Street Journal reported that repairs at the plants could take months longer.

The recent Middle East saga suddenly got more of a European flavour as Britain, France and Germany joined the US in accusing Iran of an attack on Saudi oil production. The European countries urged Iran to agree to new nuclear and missile talks. However, Tehran ruled out the possibility of negotiating a new deal, stating that the European powers had failed to fulfil the agreement under the 2015 nuclear pact.

ECB President Draghi’s hearing at the European Parliament did not reveal any new monetary policy directions. Draghi defended the September package, while also continuing to show trust in the Phillips curve, repeating the potential for further cuts if needed. Finally, he also mentioned that new ideas such as MMT (Modern Monetary Theory) could be discussed among the Governing Council, although is in no rush towards this.

No Video Today – Back Tomorrow

Method Price
VWAP 12328
Point of Control 12320
Value Area High 12348
Value Area Low 12284
Pivot 12352
R2 12541
S2 12162

In his comments about opposing QE, ECB policymaker Francois Villeroy de Galhau said on Tuesday he supports many elements of new stimulus package including state-dependent forward guidance and tiering introduction. He commented rate cut in combination with new guidance is a powerful combination.

However, he added further asset purchases are unnecessary right now saying that he was “not in favor of the resumption of net asset purchases at this time, because I thought that further purchases are unnecessary right now, and I stress right now, given the very low levels of both long-term interest rates and term premia.”

He added he was being focused on the ECB’s new line, looking for fiscal stimulus from the Government to support the economy.

Still, he acknowledged the uncertainty surrounding the global economy and hinted that if the situation worsens, he will reassess.

Monday 23rd September

It seems that we have a mini-crisis developing in the German manufacturing industry. The German composite PMI fell in September to lows of 49.1, last seen in 2012, IHS Markit announced on Monday. The August index was 51.7.

The manufacturing PMI index was at 41.4, falling compared to the previous month’s 43.5 as it reached a 123-month low. Meanwhile, the services PMI activity index hit a 9-month low at 52.5. The services index in August was reported at 54.8. The survey said that inflows of new businesses declined for the third consecutive month and demand for exports was also lower.

Phil Smith, principal economist at IHS Markit said Germany may not see any growth by the end of 2019 and added: “The manufacturing numbers are simply awful. All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralyzing order books, with September seeing the worst performance from the sector since the depths of the financial crisis in 2009.”

No Video Today – Back Tomorrow

DAX Major Trend

The continued failure to break resistance, coupled with this latest recession signal has spooked the DAX. The next stop is the major support zone.
Method Price
VWAP 12442
Point of Control 12456
Value Area High 12467
Value Area Low 12425
Pivot 12424
R2 12509
S2 12340
Investors sold off stocks in the Eurozone on Monday and risk aversion strengthened upon the release of IHS Markit’s report about the activity of the private sector in Germany. The preliminary reading of the purchasing managers’ index came in at 49.1 or 2.6 points lower than in August and below the neutral 50 for the first time since May 2013. The manufacturing component nosedived 2.1 points to 41.4. It was last lower more than ten years ago. The ongoing contraction in the sector has prompted fears of a recession.