DAX 40 in the Red as Markets Approach the Week with Caution

• That DAX Continues downtrend as market sentiment remains cautious.
• Catalyst may be needed to break YTD lows. FOMC Agree or Disappoint?
• Volkswagen (VOWG_p) Targue a vRating up to 75bmillions Eeuros ($75.1 billion) for Porsche’s IPO

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DAX 40: Red figures, markets start the week cautiously

That DAX was traded lower in European trading as losses continue to mount since last week’s trendline rejection. Since then we have had declines of +/- 1000 points with the YTD lows now firmly in sight. The cautious sentiment at the start of the week is due to a number of upcoming central bank meetings as well as Friday’s Eurozone PMI.

The Asia session briefly raised hopes that we might see a positive open for equities People’s Bank of China announced a cut in the repo rate and increased cash injections into the economy. This comes as the country grapples with ongoing Covid lockdown disruptions as the central bank seeks to boost growth in one of the world’s key growth regions. The impact of China’s restoration of some semblance of economic normalcy could give global markets a huge boost as it remains the world’s second largest economy.

Wednesday brings the week’s major event risk in the form of the US Federal Reserve meeting. Consensus has priced in 75bp with an 80% probability. If the Fed issues a 75 basis point hike on Wednesday combined with bullish forward guidance and a year-end rate above 4.25%, I expect stocks to tumble and new yearly lows are possible. Alternatively, if we get a 75 basis point raise followed by dovish commentary and a year-end rate target around 4.00-4.25%, we should see bullish action in equities and indices.

Economic data for the euro zone was sparse for the week with a multitude of talks from European Central Bank (ECB) Members expected to be the key. Friday’s PMI print is the first look into euro-zone business activity for the month of September. PMI printing has already spent two months below the 50 level, which separates contraction from expansion, as recession fears for the region continue to mount. A recent Bloomberg poll by Economists now puts the probability of a two-quarter contraction at 80%, up from 60% in the previous poll. The PMI data is expected to be a key indicator of how far we are from an official recession, which could weigh further on the index.

On the corporate front, Volkswagen (VOWG_p) stock rose 1.1% after it was revealed the auto giant is targeting a valuation of up to 75 billion euros ($75.1 billion) for its initial public offering of Porsche. The German carmaker said late Sunday the deal comes at a time of profound market upheaval, with commitments from key investors giving a boost. The Qatar Investment Authority, the Norwegian sovereign wealth fund, T. Rowe Price and ADQ are to subscribe for preferred shares worth up to 3.7 billion euros, the manufacturer said.

All market moving economic news and events can be found at DailyFX Calendar

DAX 40 daily chart – September 19, 2022

Source: TradingView

Technically, we had a massive Candle Shooting Star Close to the weekly newspaper, which also devoured the previous week. We saw a +/- 800 point drop last week with today’s declines bringing the total drop to just over 1000 points from highs around 13550.

On the daily time frame we pushed further lower this morning before finding support at the 5th September low around 12590. From an intraday perspective, this level could hold the key relative to the YTD low (12377) as a close below could open a retest of the YTD low or a clean break to the downside and a new bottom low. This would match the overall structure of the daily time frame. We are currently trading again under the 20, 50 and 100 SMA while a pullback to retest the MAs cannot be ruled out as we approach the FOMC meeting.

Key intraday levels worth watching:

Support Areas

•12590

•12450

•12377

resistance areas

•12787

•12912

•13000

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Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda