DAX Declines as Global Geopolitical & Inflation Concerns

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 18th 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.

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Gino Bruno D'Alessio
Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.
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