DAX Index: Russia Concerns, ECB Rate Hike, Weigh on German Stocks

Summary:
• The DAX index is showing signs of weakness this Tuesday as concerns over Russia gas supplies and the ECB rate hike impact weigh.

The DAX index is down 0.69% on the day as European markets falter this Tuesday on the back of a slew of negative fundamentals. Concerns over weaker earnings, the gas crisis and a hawkish ECB are weighing on the index, which is still smarting from last week’s underwhelming PMI data. 

The DAX index has met strong headwinds after Russia slashed gas supplies to the region. Gazprom said it was cutting supplies to Europe via its Nord Stream 1 pipeline by about 20%. Much of Europe’s gas supply comes from Russia, and investors fear the coming months could usher in an uncertain winter if the energy supplies dry up entirely.

This has put pressure on Germany’s manufacturing base, which is already facing headwinds as shown by last week’s PMI data that showed a contraction of business activity in Germany’s manufacturing sector. 

Last week’s hike in interest rates by the ECB may also be weighing on sentiment. The DAX typically underperforms when higher interest rates are at play, as borrowing for capital investments becomes more expensive. 

DAX Index

The advance from the 12903 neckline to the 13383 resistance (27 June high) completed the measured move from the completion of the double bottom. Following the completion of this move, a correction ensued. 

The correction move from the rejection of the advance at 13383 continues, targeting the immediate support level at 12903 (23 June low, 12 July high). This former neckline now acts as support. If the bulls fail to defend this level, a breakdown toward the 12625 support level (1 July high) ensues.

Additional downside targets are found at the 12351 price mark (25 September 2020 low) and the 12033 support, the site of a previous low of 28 October 2020. Conversely, a break of the 13383 resistance level is needed to allow the bulls to push an advance of the DAX index, targeting 13652 initially (13 June high).

A clearance of this barrier gives the bulls clear skies to aim for the next harvest point at 14128 (10 June high). Only after this barrier is cleared is the 14401 resistance mark (6 April and 9 June highs) comes into the mix as a new northbound target.

DAX: Daily Chart