DAX Continues Rally – Set to Make a 3-Day Streak

Posted on July 5, 2024July 5, 2024 by Gino Bruno D'Alessio

DAX is up 0.8% so far this session and continues a 2-day rally despite today’s poor economic data.

Industrial Production MoM released earlier today at -2.5% compared to last month’s 0.1%. The market seems to have taken it in its stride, and that’s also taking into account forecasts were for a small rise in activity by 0.2%.

One reason why the market is not too worried by the drop in monthly industrial activity is that most of the [[DAX]] are large exporters of their goods, and international trade has a greater weight than local industrial production.

Auto tire -maker Continental is leading the way for the index, up nearly 7% on the day as the stock continues to rally from a recent low. Other top performers include MTU Aero Engines up 2.08% and Hannover Ruck 1.91%.

The attention now turns to this afternoon’s Non-farm Payrolls from the U.S. The markets are expecting a decline from last month’s 272k to 190k. The decline would still show an expanding economy, be it at a slower rate.

The market may accept the news well, as investors would consider that the Fed may see less inflationary pressure from a lower employment number.

Technical View

The day chart below for the DAX shows a market still in a bull trend with the market back above the cloud. Today’s candle is finding resistance at the level of 18,601 (black line), which is a high set in April.

We may see more bullish action if we get a close above the black line, after which the next resistance would be at the all-time high of 18,911 (red line). To the downside, the market has immediate support from the cloud.

Then further below the cloud at 17,939 (green line), which was the low of the correction from the ATH. To consider the bull trend as back in action we would need to see a close above the ATH. For the meantime the market is now looking like it is likely to trend sideways.

The upper and lower boundaries of the ATH and the green line from the last dip at 17,939 will set the liekly range.

[[DAX-graph]]

UK Elections: What you need to know

Posted on July 4, 2024 by Gino Bruno D'Alessio

The UK general election is underway today, with polls showing the Labour party likely to take an outright majority in the house of parliament.

Today’s election result could put Labour back in power after 14 years of Tory rule. Some polls are forecasting Labour’s victory could one the biggest parliamentary majorities in British history.

One of the main reasons for the shift from Tory to Labour is the desire for change. During the reign of the Conservative party politicians have been wrought buy scandals during the pandemic, war with Ukraine, and high inflation.

Rishi Sunak, the current prime minister, took the job after Lizz Truss was ousted for proposing sharp tax cuts. The pound plummeted, Gilt yields soared, and mainstream media crucified her for proposing the same policies that had made ex-prime minister Margaret Thatcher so popular.

Sunak was elected as the new prime minister by the Conservative party barons without a popular vote. The current prime minister is an ex-Goldman Sachs banker with shares in a fund that has invested heavily in companies that produced the Covid vaccine.

The vote for Labour is seen as a way to get change. Keir Starmer the Labour party leader hasn’t even proposed a clear agenda of policies. His campaign has been based on promises to make government fairer and to stop the chaos.

The [[FTSE]] opened slightly higher on the day up 0.4% at the time of writing. While [[GBP/USD]] is also slightly bullish, up 0.02%. The markets may feel that, either way, a Labour or a Tory is good as long as there is a majority.

Tail Risk

We may still get a surprise tonight, voting finishes at 10 pm UK time, after which exit polls will be announced. Most polls are placing Labour first by a wide margin, with the Tory party 20 points behind Labour in many polls.

One poll showed that the Tory party may even come in third, behind the smaller Liberal Democrat party. But we have seen so many polls get voting predictions wrong that it wouldn’t surprise me if we get an unexpected result here too.

The most renowned blunder for voting polls was the Brexit referendum in 2016, which was supposed to be won by the Stay group. The result in that referendum stunned the markets and most of mainstream media.

Could anything of this magnitude happen in today’s election? It remains very unlikely, the average British voter is set along red or blue lines and voting in the least bad option. However, the Reform party is gaining traction, and has added to its candidates Niel Farage.

Farage was the lead figure in the Brexit campaign, which he eventually managed to win. His candidacy has given the Reform party visibility and renown, something they have had little of since they formed.

Reform Party’s First Seats

The reform party may win its first seats in the house of parliament. But it may also make things worse for the Tory party. Many analysts believe the Reform party votes will come from the Conservative vote.

However, I’m not so sure, many British citizens share the same concerns whether they are on the left or right. Concerns which establishment parties like Labour and the Tories do not wish to even address.

If they do address them, such as immigration, what he have seen is the Conservative party promise to reduce illegal immigration, yet it has risen for every year they have been in government.

The surprise might come from the percentage of votes going to the Reform party. Most polls place them at receiving between 15% and 17%. Should that be a much larger number, although it may not win the more seats, it would show that the two-party system is beginning to fall.

[[GBP/USD-graph]]

DAX Declines as Global Geopolitical & Inflation Concerns

Posted on July 2, 2024July 2, 2024 by Gino Bruno D'Alessio

The German stock index opened lower today on the heels of a broader stock index decline in the US.

Investors are facing a challenging summer ahead. Geopolitical concerns from the war in Ukraine to the conflict in Israel. Coupled with the possibility of inflation printing higher than expected numbers.

We had a preclude last week with GDP Price index numbers printing higher than expected. We will all get one EDB policy meeting on July 18^th and a Fed meeting on July 30-31. Both central banks are widely expected to leave rates on hold.

What the market will be looking out for is the forward guidance for clues on when the ECB will lower rates again, and when the Fed will pivot to monetary easing. Then we will see some extra volatility as investors and traders begin to take their holidays.

The summer months are typically a period of the year when markets are more volatile than average, and stock returns tend to be weak. The [[DAX]] is down 0.9% today, but one stock is on a rally.

In stark contrast to the major trend, Siemens Energy AG (ENR) is up 3.5% on the news that the company is in the process of hiring 10,000 employees for its energy grid technology division.

Technical View

The day chart for the DAX below shows a market struggling to remain above the Ichimoku cloud. For now, several attempts to break below the cloud have failed. Most of the candle bodies have closed with the cloud.

This type of action denotes uncertainty, with attempts to break above the cloud also failing. Yesterday’s candle is about to print as an Abandoned Baby, depending on today’s candle.

This pattern is typically bearish, and I would expect the market to trade below the cloud in the coming days. The next support is at 17,939 (light green line), which coincides with the market’s first dip below the cloud.

Should that break, the next major support would be at 17,419 (orange line), which coincides with the end of a correction that led to the last leg of the bullish trend.

[[DAX-graph]]

CAC Rallies After 1st Round in General Election

Posted on July 1, 2024 by Gino Bruno D'Alessio

French stocks rallied this morning with other Eurozone indices, but the shadow of the general election result remains.

Marine LePen’s party National Rally obtained the most votes in the first round of elections, with polls placing her party within striking distance of winning an outright majority in parliament.

Macron is now considering pulling out of some electoral colleges to avoid a 3-way race where his party has little chance of winning the second round. He’s hoping that his voter will rally around the alternative to Marine LePen.

However, the second place in the first round went to the far-left alliance led by Melenchon’s France Unbowed party. The party is accused of harboring antisemitic views, which have been denied by Melenchon.

The second round could lead to an out-right majority in parliament for Marine Le Pen, which would oblige Macron to appoint the prime minister from her party. The event would create a disconnect between the president and the legislative branch.

But the final round of votes could also leave the National Rally with a win but without an outright majority. This would leave Macron’s party to attempt an alliance with the far-left alliance led by Melenchon.

Either scenario might make reducing the national debt and keeping a corporate friendly environment harder. Moody’s has already stated that they may place their outlook for French government bonds to negative.

Technical View

The day chart below for the [[CAC]] shows a bearish trend with the market below the Ichimoku could following a series of lower lows and highs. The previous low from June 14 seems to have created a base after a second touch on Friday.

Today’s candle is a bullish one but seems a take-profit reaction after the latest slide from its all-time high of 8,259. Today’s candle found resistance at 7,721 (green line), which has been tested twice before.

The last 10 candles have remained within the range of 7,460 (black line) and 7,721 (green line), which are now the immediate support and resistance levels. The next support is at 7,281 (orange line) and the higher resistance is at 7,854 (blue line).

[[CAC-graph]]

EUR/USD In a Range Ahead of U.S. PCE Data

Posted on June 28, 2024June 28, 2024 by Gino Bruno D'Alessio

The market is awaiting PCE data from the U.S. later this afternoon, with analyst expecting the number to show a small decline.

Market sentiment has been mixed over the past weeks as hawkish and dovish sentiment battle to take the [[EUR/USD]] into the next direction. Yesterday’s data for Durable Goods was better than expected, but GDP growth was lower than the forecast from last month.

The dollar lost some ground yesterday due to the weaker economic expansion expressed by the GDP Growth rate declining to 1.4% Q1 2024 from 3.4% Q4 2023. The market’s attention has now turned to the PCE MoM and YoY data for this afternoon.

It would surprise me that the PCE data is lower than the previous month’s number. The reason being that inflation data released yesterday was higher than expected and higher than the previous month’s.

Along with the main data yesterday, we also got GDP Price index, up 3.1% compared to last month’s 1.7%. We also got Core PCE Prices QoQ Final Q1, up 3.7% compared to last month’s 2%.

While the broader PCE Prices QoQ Final Q1 was also up 3.4% compared to last month’s 1.8%. Intuitively, I would mark today’s data to print higher than expected and higher than last month’s reading.

Technical View

The day chart below shows a EUR/USD price in a bearish market. Several candles below the cloud, and all components of the Ichimoku system aligned as bearish. However, looking at the chart we can also see the market is still with a range, even if that range is declining slightly.

Since breaking below the cloud, the market has found support at 1.0665 (blue line). The nearest resistance is at the bottom of the cloud around 1.0749.

While the following support below 1.0665 is at 1.0600 (black line). That level coincides with the last dip on April 16 and with the support of the big figure of 06.

[[EUR/USD-graph]]

DAX Takes a Dive as Political Concerns Garner Speed

Posted on June 28, 2024June 28, 2024 by Gino Bruno D'Alessio

General elections in France are raising concerns as it seems ever more likely the right-wing party will land an outright majority.

The two-round vote will take place on June 30 and July 7 to elect a new national assembly. The latest polls show Le Pen’s National Rally (RN) party well in the lead, and possibly landing 307 seats out of the 577-seat parliament.

If the polls are right many of Macron’s candidates won’t even make it to the second round. This would leave the current presidential party with a small representation.

Polls suggest that the second largest party would be France Unbowed. Which is a coalition of far-left parties and has a similar stance to RN on illegal immigration and EU overreach.

An outright majority would allow Le Pen to elect the prime minister and put Macron at odds with the legislative branch. Still, Macron has said he will stay in power until the next presidential elections in 2027.

However, it would greatly undermine his authority, Macron has used article 49.3 of the constitution to pass laws as a directive at the stroke of a pen. The directive power is similar to the executive order used by U.S. presidents.

The [[DAX]] is down 0.81% on the day and almost 3.0% over the past 3 days. More importantly, the index is down 5.8% since the Monday open following the EU elections.

Whether the next elections usher in a new left- or right-wing movement, the market has it clear that they are unlikely to be as corporate friendly as Macron’s business driven party. The president’s drive to make France a corporate friendly country has helped the stock index returns.

However, citizens have different concerns about healthcare, public security and quality of life. Macron’s focus on profits has driven many of his voters away from the party. And it seems that his CEO approach to running France is about to face a hefty bill.

[[DAX-graph]]

Yen Falls to Levels Not Seen in Decades – Speculation of BoJ Intervention

Posted on June 27, 2024June 27, 2024 by Gino Bruno D'Alessio

The yen fell to 160.86 against the US dollar overnight as dollar strengths continue to punish the currency.

The last time these levels were reached was April 1990, when the [[USD/JPY]] peaked at 160.40. Since the wave of monetary tightening started in 2022 the yen has been suffering against G7 currencies.

The BoJ has seen inflation rise at a much slower rate than the US, and only raised rates from -0.1% to 0.1% in March this year. A move that did very little to stop the decline in the yen. The interest rate differential heavily favors the US dollar carry trade.

The economic activity in Japan and the interest rate spread has pushed the yen lower by 23% in 2024 alone. The spread may be at a pivot point, the Fed is set to decrease rates by Q4 while the BoJ is getting closer to rising rates.

A tightening interest rate gap should bring the yen higher, in the meantime, speculation is rising that the BoJ will intervene in the forex market to prop up their currency. Intervention may also come from the JGB purchasing program, where the central bank can reduce its balance sheet and push up yields.

Later today we are expecting GDP Growth and Durable Goods Orders from the US. Most analysts are expecting a decline in both. With a drop in GDP Growth Q1 to 1.4% from 3.4% YoY, and a sharp drop in Durable Goods MoM to -0.1% from 0.7%.

Technical View

The chart below for the USD/JPY shows a market that is in a bullish trend and broken through its previous high from April 29. The RSI is over 70 indicating a strong bullish trend, however, a dip back below 70 would signal a probable retracement.

The closest support is the previous high at 160.21, should that break the following support is at 157.64 (orange line), which also coincides with the Kijun Sen (crimson line) from the Ichimoku system.

The current level is showing signs of overbought, and we must link this to statements from BoJ officials that levels of 160 could import inflation. So, it seems likely that intervention will come and, at least temporarily, give the yen some reprieve.

[[USD/JPY-graph]]

DAX Down 0.65% NVIDIA Correction – ECB Policy Take Front Seat

Posted on June 25, 2024 by Gino Bruno D'Alessio

The Frankfurt stock exchange index declined sharply today on the heals of a pullback in NVIDIA stocks and concerns of a delay in ECB action.

The US tech giant NVIDIA has been correcting its bullish trend over the past 3 days and brought the broad stock index, Nasdaq, down with it. Other markets have followed suit in what some are referring to as a Cisco moment.

While others claim that the AI revolution will bring about sustained growth, not only for the main AI player, but for the broader market also. Thee [[DAX]] had been climbing on the back of the AI surge, but also in view of a dovish ECB.

The sentiment that the ECB might act quickly in loosening monetary policy began to fade when the Fed put the brakes on. The perception that the ECB could lead in interest rate cuts is hard to hold.

Mainly because it rarely happens. And after the last ECB meeting the market had to come to terms with an ECB that would put any further easing on hold. Interest rate concerns and falling tech stocks are driving the market for now.

Technical View

The day chart below for the DAX shows a market in a sideways trend that started 7 sessions ago. The market tried to break below the Ichimoku cloud, but the attempt failed. The market is trading against the resistance of the cloud showing clear uncertainty in the next trend.

For a breakout to the downside to be complete we would need to see the lagging line (purple) from the Ichimoku system below the cloud. That would also coincide with a close below the closest support at 17,939 and 17,912 (dark and light green lines).

If this scenario arises, the next support is at the previous low of 17,419 (orange line). To the upside, the closest resistance is at 18,283 (blue line), and after that the top side of the cloud.

Should the market break those levels the next resistance are at 18,601 (black line) and then the all-time high of 18,911 (red line).

[[DAX-graph]]

NIKKEI225 BoJ Summary Points to Hawkish Stance

Posted on June 24, 2024 by Gino Bruno D'Alessio

Highlights from the summary of opinions from the BoJ’s recent policy meeting show board members raised the possibility of hiking interest rates.

Comments from the summary show that the BoJ are concerned about lingering inflationary pressure. One board member stated that “There is a possibility that prices will deviate upward from the baseline scenario if another pass-through of recent cost increases to consumer prices happens”.

In light of supporting raising interest rates the same member also added “It is therefore necessary for the bank to consider whether further adjustments to monetary accommodation are needed from the perspective of risk management”.

These seem very hawkish comments and we now know that an interest rate hike is on the table. The [[NIKKEI225]] opened higher today and has maintained most of its overnight gains up 0.65%.

The central bank will give details of the size of reduction in its JGB purchasing program at its next meeting in July. The bank has used bond intervention to increase yields and to defend a tumbling yen.

A weak yen may add to the incentives for the BoJ to raise rates, as a high USD/JPY rate will create price pressure through imported inflation.

Technical View

The day chart below for the NIKKEI225 shows a market that has been trading within the Ichimoku cloud over the past 6 sessions. This area has also coincided with a fairly tight price range.

The cloud, also known as no-man’s land, is an aera of uncertainty, which is also evident from the sideways trend. A breakout above or below the cloud should give rise to the next trend with resistance at 39,447 (purple line), corresponding to a previous high.

On the downside the first minor support is at 37,915 (blue line), and further down the major support is at 37,599 (red line), which corresponds to a dip on May 30.

A breakout of the cloud should also coincide with a close above or below the blue area. And consequently above the purple line or below the blue line.

[[NIKKEI225-graph]]

EUR/USD Eurozone Flash Manufacturing PMI Shows Unexpected Decline

Posted on June 21, 2024 by Gino Bruno D'Alessio

The Eurozone Flash Manufacturing PMI declined to 45.6, the forecast was for a small increase to 47.9 compared to last month’s 47.3.

The Flash Composite PMI remained above 50 at 50.8, another large decline from last month’s 52.2. The Services PMI is the component that kept the Composite above 50, printing at 52.6 compared to last month’s figure of 53.2.

The euro rally at the start of the week was fueled by the sentiment of a decreasing dovish stance by the ECB. However, the Fed’s likelihood of keeping rates higher for longer has predominated market opinion leading to lower [[EUR/USD]] over the last 2 sessions.

The focus now turns to next week’s data from the US. Next Thursday we will get GDP Growth Q1 and Durable Goods Orders MoM. While next Friday we have inflation data for PCE, the Fed’s favorite index for gauging price pressure, and consumer confidence.

Both durable goods and GDP growth are expected to decline considerably. The data, if confirmed, could create expectations that the Fed may see more reasons to start implementing monetary easing.

However, as the Fed has stated many times, inflation is the key data to establish their policies, and PCE is the main element of inflation gauges that they consider. So, we’ll likely get a lot of volatility on the PCE release if there’s an unexpected number.

Technical view

The day chart below for the EUR/USD shows a market that may have technically entered a bear trend according to the Ichimoku system. If today’s candle closes in the red around this level, the final element of the system would be fulfilled.

The last element is the lagging line (dark green), which also needs to close below the Ichimoku cloud to complete the signal. A close below the support of 1.0692 (light green line) would give further indications of a bearish trend.

The next support level would be the recent low of 1.0667 (blue line). Should that break, the next support level is at 1.0600 big figure, which also coincides with the dip of the previous bearish leg on April 16.

[[EUR/USD-graph]]