DAX futures declined after finding resistance at 9680 (R1)

DAX futures

• The dollar traded unchanged or higher against its G10 counterparts during the European morning Tuesday. It was higher against SEK, NZD, AUD, GBP and NOK, in that order, while it was unchanged against CHF, JPY, EUR and CAD.

• The German ZEW survey for September fell once again, adding to evidence that the German recovery is petering out. The euro was resilient despite the fact that the expectations index declined for the ninth consecutive month, reaching its lowest level since December 2012. The current situation index also declined, adding to the growing body of evidence that the Ukraine crisis and the related sanctions on Russia have started being reflected in the survey data.

• UK’s CPI slowed to 1.5% yoy in August from 1.6% yoy previously, a level last seen in May and before that, in 2009. The slowdown in inflation was in line with market consensus but kept the British pound under selling pressure ahead of the Scottish independence referendum.

• Emerging markets’ recent slowdown was reinforced by the renewed softness in Chinese activity data and the possibility that the FOMC will bring forward the expected time of the first rate hike at its meeting this week. Following the unexpected decline of Chinese industrial production on Saturday, data released today showed that the country’s FDI dropped in August, missing forecasts of a moderate rebound. The weak data coming from China raises doubts about whether the nation will hit its 7.5% growth target this year.

• Almost all equity markets in Asia and Europe, as well as the S&P 500 futures, were down as a result. EM stock markets for example are on their way to their ninth consecutive down day. This has serious implications for EM currencies and carry trades, as foreign investors repatriate their investments. Meanwhile in Europe, Germany’s DAX opened with a gap down and at midday is down approximately 0.3%.

• DAX futures declined after finding resistance at 9680 (R1) and the upper boundary of the blue downside channel that has been containing the price action since the 5th of September. Moreover, on the 12th of the month, the index fell below the prior uptrend line (black line), drawn from back at the low of the 8th of August. At midday in Europe, the price is trading near the 200-hour moving average and above the 23.6% retracement level of the 8th of August – 5th of September uptrend. Given the proximity to that support line, and the fact that our momentum signs are mixed, I would see a cautiously negative picture. The hourly MACD topped below its zero line and fell below its trigger, while the 14-hour RSI, although below 50, is pointing up. I would wait for a clear and decisive dip below 9580 (S1), the aforementioned retracement level, before getting more confident about the continuation of the decline. Such a move could pave the way towards the 9465 (S2), determined by the lows of the 2nd of September, marginally above the 38.2% retracement line of the prior near-term uptrend.

• Support: 9580 (S1), 9465 (S2), 9370 (S3).

• Resistance: 9680 (R1), 9745 (R2), 9790 (R3).