DAX: ECB on Course to Cut Rates Tomorrow – Market Awaiting Press Conference for Guidance
At tomorrow’s ECB monetary policy meeting the market is widely expecting a 25 basis point cut. What remains to be seen is the forward guidan
At tomorrow’s ECB monetary policy meeting the market is widely expecting a 25 basis point cut. What remains to be seen is the forward guidance offered at the post meeting press conference.
Many analysts and traders are expecting a hawkish stance after the announcement of an ease in monetary policy. The chances of a cut tomorrow are estimated to be at 95%, what the market really wants to know is if the easing will continue.
The market has already priced in a cut tomorrow for weeks, and what remains to be seen is how soon the next rate cut will arrive. The likelihood of back-to-back cuts is around 10% according to some analysts.
Most predictions are for a second rate cut in September after the summer break. The ECB’s president is seen as likely to commit herself to the usual stance of being data dependent. Without offering any clues as to when the next rate cut may occur.
This might cause some concern, the last data for Eurozone inflation showed a rise from 2.4% to 2.6%. Another concern for the ECB would be the widening interest rate differential with the US. The Fed isn’t expected to start cutting rates at least until September.
The widening gap is likely to further weaken the euro and create inflationary pressure from higher prices for imports. On the other hand, that might well benefit the DAX as companies will be able to profit from cheaper prices for their exports.
Technical View
The Dax has traded in a fairly tight range over the past 4 trading sessions and looks like it will remain within a range today also. The market is on the sideline as we roll up to the scheduled monetary policy meeting of the ECB.
The trading range has been limited by the previous high of 18,634 on April 1, and the low from the support of the Kijun Sen (crimson line) at 18,363. Tomorrow’s candle could give some more indication of the next move’s direction.
Hopefully volatility from the comments at the press conference will send the market above or below these high and low boundaries.
Should the market manage to breakout of the range, the next resistance level is the all-time high of 18,928, while the next support would be a double top from April of 18,237.
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