DAX: Gears Up for the ECB Meeting Later Today

The stock market has largely priced in a 0.25% cut in interest rates today, what will be driving the market after the policy announcement will be Lagarde’s speech and answers at the press conference.

Investor and analyst consensus is for the ECB to cut the main interest rate by 25 basis points, from 4.25% to 4.00%. What will drive the market post decision announcement will be the forward guidance and the answers from the ECB chief.

The market hopes to hear that the monetary loosening will continue and that the central bank is likely to cut rates again before the year end. We can expect a considerable amount of volatility post decision and during the press conference.

The stock market is currently hindered by poor economic data from China, Germany’s largest trading partner, and signs of economic weakness at home. A simple interest rate cut as expected may not be enough to keep the recent rally intact.

Technical View

The day chart below for the DAX shows a very wide sideways trend underway since April. The range is topped by the all-time high of 18,995 and the low of the recent dip to 17,016. The recent rally, even though it printed a new ATH, it failed to lead the rally further.

The market retraced to current levels close to the Ichimoku cloud. The previous 3 candles have created a sandwich pattern, with green outside candles signaling a possible move higher. Today’s candle found resistance at the previous high of 18,601 (black line).

The market is still technically in a bull trend with prices above the cloud. However, there is no clear momentum, as can be seen by the wide sideways pattern and the RSI hovering around the level of 50 for most of chart.

To consider a consolidated bull trend, we would need to see the market close above the ATH of 18.995. The next resistance is at the previous high of 18,785 (blue line). To the downside, the support is at the cloud and the low of a previous dip of 17,939 (green line).