DAX 30 Rejected Again at 15,800; ZEW Sentiment Slumps on Gloomy Outlook

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Key Talking Points:

  • DAX 30 battling to find direction as buyers and sellers go head to head
  • The ZEW economic sentiment indicator drops more than expected to 40.4

The tantrum we saw yesterday in commodities hasnt really helped settle the mood in the markets, keeping equities subdued. The DAX 30is struggling once again to build gains above 15,800 having being rejected for a third time since mid-June, with the drop in gold and oil likely spooking sentiment away from consolidating higher.

DAX 30 Daily chart

DAX 30 Rejected Again at 15,800; ZEW Sentiment Slumps on Gloomy Outlook

The daily chart is showing again a clear picture of indecision, with yesterday’s candlestick having no body at all and today’s set up following the same pattern so far. Momentum indicators are showing willingness on behalf of buyers with the RSI sitting comfortably on the 60 mark whilst the stochastic is settling above 80, but sellers remain strong around 15,800 and it is likely going to take a big build-up in momentum to break above this area, so we’re likely to see the DAX trading lightly between 15,780 and 15,720 in the next few sessions in the absence of a catalyst.

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One of the reasons behind the weakness in commodities in the last few sessions is concern about rising cases of the Delta variant in both the US and China, which is causing demand to weaken. Cases in the US have risen to a 6-month high whilst China is also dealing with the effects of recent devastating flooding, which is making it more difficult to contain the new outbreaks.

In Europe, we had the ZEW economic sentiment index out this morning, dropping more than economists had forecasted and painting a rather gloomy picture. The index was expected to fall further to 56.7 in August against a 63.3 reading seen in the previous month, but the actual figure came in at 40.4, the worst reading since November 2020.

ZEW President Achim Wambach said, “expectations have declined for the third time in a row. This points to increasing risks for the German economy, such as from a possible fourth covid-19 wave starting in autumn or a slowdown in growth in China.”

The reaction in the DAX 30 has been very limited but it isn’t uncommon that the equity space reacts a little slower than other assets, so it may be the case that this negative reading builds on top of the already dampening sentiment and will then take the index lower in the next few days.

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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