- Energy Crisis Worsens, Fleet of Ships Carrying Diesel Headed for Europe.
- Key Rhine River Waypoint Expected to Rise Bringing a Sliver of Relief.
- Fed Minutes Nuanced Messaging Fails to InspireRisk-On Sentiment.
DAX 40: Stages Modest Bounce as Fed’s Nuanced Message Fails to Inspire Equity Rally
The DAX staged a modest bounce in European trade as we pushed higher following on from yesterday’s 360 odd point sell-off. Overall the market sentiment appeared mixed in European trade, as markets digested the FOMC minutes released by the US Federal Reserve yesterday. The key takeaways are the Fed stating a continued belief that rate hikes will continue as they fear inflationary pressures becoming entrenched. That said, they did flag an eventual slowdown in the pace of hikes, but not a switch to cuts in 2023 that had been the widely held belief prior to the minutes’ release.
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As the European energy crisis worsens, a fleet of ships carrying diesel is heading for European markets. Five ships transporting close to 3 million barrels are poised to move from Asia to Europe so far in August, preliminary data from Vortexa show. That’s the most in five months on a barrel-per-day basis, with shipments from the Middle East also expected to expand.
To assist German consumers Chancellor Olaf Scholtz announced a temporary cut to sales taxes on natural gas to 7% from 19% to try to ease the burden on households and companies. With the new levy incoming in October discussed yesterday, this measure will be welcomed. According to Chancellor Schultz “With this step, we are reducing the burden for gas customers overall much more than the burden created by the gas levy. This reduced VAT rate will apply as long as the gas levy is collected.” A further positive for the German economy comes in the form of the Rhine Crisis, which shows signs of respite with water levelsset to rise. The crisis is far from over however, the marker at Kaub, a narrow and shallow waypoint west of Frankfurt, is set to rise to 67 centimeters (26.4 inches) by Aug. 22, German government data show. This compares with a current level of about 38 centimeters. Some vessels continue to restrict loads with the Rhine seen as one of the issues exacerbating the energy crisis.
The strong 14000 psychological level came into play yesterday as the index saw a loss of around 360 points from its high. As mentioned since the end of last week a break above 14000 seems unlikely without a sustained positive shift in overall market sentiment.
DAX 40 Daily Chart – August 18, 2022
From a technical perspective, Friday’s weekly candle close saw us post 4 consecutive weeks of bullish price action and higher prices as the bullish rally gained steam. The weekly candle closed without any upside wick indicating buyers were firmly in control. Monday’s inside bar hanging man candlestick hinted at continued downside, however it was followed by Tuesday’s bullish engulfing candlestick and yesterday’s bearish engulfing candlestick highlighting the indecision in markets as well as the importance of the key psychological 14000 level. At this stage, we could enter a period of rangebound price action without any catalyst pushing the index in either direction.
DAX 40 1H Chart – August 18, 2022
On a 1H chart we have seen a close above the trendline in what could be described as a false breakout. Following yesterday’s aggressive drop, we have found 1H support around 13600 before rallying 179 points to a session high of 13779. We now trade back above the 20-SMA with the 50 and 100-SMA resting just above the current price providing resistance. A daily candle close below 13500 will change the daily structure and outlook to bearish as well. I would urge caution as we approach the weekly high and key psychological 14000 level again.
Key intraday levels that are worth watching:
Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter:@zvawda