- German inflation rises 0.9% MoM, yearly decline to 7.5%.
- Historic European drought threatens trade.
- Expectation beating US CPI boosts market sentiment.
Bond Yields and Their Relationship to FX
German Index Bounces after Better-Than-Expected Inflation Print
The DAX continued lower in early European trade before bouncing to post gains as we approach the US Market Open. Much of the uncertainty in early European trade can be attributed to the anticipation around the US CPI numbers. With US inflation easing somewhat the index gained around 96 points in the immediate aftermath of the release to a daily high of 13698.
German CPI rose 0.9% MoM in July with a marginal decline on the yearly inflation figure to 7.5%, a print in line with forecasts. This could be a sign of moderating inflation, however with the recent German fuel and public transport subsidies ending soon and German energy giant Uniper SE recently warning that sharp price increases will be passed on to the consumer the joy could be short lived.
Adding further challenges to the German economy, the recent heatwave across the continent means its rivers are evaporating.The Rhine River, a pillar of the German, Dutch and Swiss economies for centuries is set to become virtually impassable at a key waypoint later this week, stymieing vast flows of diesel and coal. The continent’s rivers and canals convey more than 1 ton of freight annually for each EU resident and contribute around $80 billion to the region’s economy just as a mode of transport, according to calculations based on Eurostat figures. The poor conditions are expected to drag down the region’s economies far worse than the 5 billion euro (USD5.1 billion) hit caused by Rhine transit issues in 2018.
In corporate news, E.ON SE (EONGn) cut the value of its stake in the Nord Stream 1 gas pipeline by around €700 million, citing “heightened uncertainty” over the impact of Russia’s war on Ukraine. Shares in Europe’s largest operator of energy networks slumped towards the bottom of the STOXX 600 in early deals.Tui AG NA (TUIGn) shares also fell after the holiday group reported a third-quarter operating loss as air traffic disruptions in Europe led to an uptick in costs. But the company said it expects bookings this summer to near pre-pandemic levels.
For all market-moving economic releases and events, see the DailyFX Calendar
DAX 40 Daily Chart –August 10, 2022
Source: TradingView
From a technical perspective, last week Friday saw an indecisive weekly candle close while yesterday’s daily candle closed as a bearish engulfing pattern just above the 50% fib level hinting at further downside. We have had a early push down during European trade as we trade between the 50 and 100-SMA and just below the 61.8% fib level. Buoyed by market sentiment there is a chance we could finally break above the 61.8% fib level and test the trendline.
DAX 40 1H Chart –August 10, 2022
Source: TradingView
The 1H chart has seen a price drop since reaching last week’s high of 13787 and tapping into the 100-SMA on the daily chart. This morning saw a brief dip below the 50% fib level before an aggressive bounce pushed us back above the 20,50 and 100-SMA’s. We are currently testing a 1H trendline with a break and close above potentially opening up a 120-point rally higher back to the most recent high at 13787.
Key intraday levels that are worth watching:
Support Areas
•13480
•13274
•13000
Resistance Areas
•13787
•14000
•14156
Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter:@zvawda
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