DAX News and Analysis
- ECB Raises all three interest rates by 50bps.
- Anti-fragmentation tool, Transmission Protection Instrument (TPI) to be released at 15:45 CET
- Russia resumes Nord Stream gas flow, bringing Europe temporary respite.
Quantitative Tightening: What is it and How Does it Work?
DAX 40: Stalls and Retreats as Outsized ECB Rate Hike Fails to Convince.
The Dax declined on the news of a 50 basis point hike by the European Central Bank before recovering and posting modest gains. Sentiment continues to flip flop between gains and losses with European Central Bank (ECB) President Christine Lagarde’s opening line in her speech by stating that growth in the Eurozone is showing signs of slowing.
Italian Prime Minister Mario Draghi resigned as the country’s prime minister, setting the stage for snap elections and threatening to unleash a fresh phase of turmoil for the nation’s debt. In the wake of Draghi’s resignation, the yield on Italy’s 10-year note jumped as much as 21 basis points to 3.6%, its highest since June. The spread over equivalent German bonds, a common gauge of risk, rose to 233 basis points. In response the ECB is trying to shield the most vulnerable eurozone members from market speculation through a new crisis management tool.If the ECB’s tool is successful in leveling the playing field for countries with higher borrowing costs, and Russia keeps up gas exports, prospects for European markets are “very, very good,” said Andrew Sheets, Morgan Stanley’s chief cross asset strategist.
Sentiment in European markets had opened with a positive tone after Russia started sending gas through its biggest pipeline to Europe after a 10-day maintenance period, according to a spokesperson for the pipeline operator Nord Stream. However, the German Energy Regulator says if Russian supplies via Nord Stream 1 remain at current levels, 90% storage levels by November will hardly be reachable without additional measures. A complete shutdown of Russian supplies will put Germany at risk of losing almost 5% of its economic output, the International Monetary Fund warned. This will do little to ease fears around the continuity and potential rationing of gas supplies.
DAX 40 Daily Chart– July 21,2022
Source: IG
DAX 40 2H Chart – July 21, 2022
Source: IG
From a technical perspective, Yesterday saw a rejection of the 50-SMA before a bearish daily candle close below the resistance area of 13300. On an Intraday perspective we have once again tested the resistance area 13300 while rejecting the 20-SMA on the 2H chart. We may well see a bounce of the 50-SMA on the 2H chart before a push down toward our key psychological 13000 level. A break and close below could open up lower prices and potentially a retest of the year-to-date lows.
Key intraday levels that are worth watching:
Support Areas
Resistance Areas
Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda