Bearish Reversal Resumes, Unfazed by Unemployment Drop

Key Talking Points:

  • Market participants remain cautious about NFP data later this week
  • The DAX 30 resumes its bearish reversal

The DAX 30 is leading the losses this morning in Europe as a broader pullback in equity markets is emerging. After a few days of consolidation and an attempted bullish recovery in yesterday’s session, the German index is down around 1.5% this morning coming to rest on the recent support around the 15,420 area.

The broader market sentiment remains pretty much unchanged as investors await the latest jobs data on Friday. Today’s moves might have something to do with half-year rebalancing after what has been a very successful 6 months for stocks, but the greater impact is likely to come from Friday’s NFP data as markets continue to believe that economic data that is showing the economy is running hot will lead to a more hawkish Fed, bringing interest rate hikes forward and ending cheap financing that has supported stocks over the last year.

The US consumer confidence data published last night rose for a fifth consecutive month and is the highest reading since the pandemic outbreak. This is serving to reinforce market participants’ healthy view of the economy, putting further pressure on the Fed to act sooner than later. The different members of the monetary policy are still offering conflicting views on when tapering and QE cutbacks should begin, but it is unlikely that anything will happen until year-end.

On the German data front, the jobs data published this morning showed a greater drop than expected in unemployed in the month of June, keeping the unemployment unchanged at 5.9%, its lowest level in a year. But this wasn’t enough to turn sentiment around.

DAX 30 Levels

The DAX 30 continues to show weakness as the index has struggled to consolidate gains since the pullback on Friday the 18th. That said, there is also a lack of commitment from sellers to bring the index down further as support has held on the 127.2% Fibonacci extension (15,424) since mid-May. A drop below this area would signal further a bearish reversal in play, which would threaten the long-term bullish trend, which will be relevant as long as the DAX 30 stays above 14,815, whilst a drop below this area could intensify the bearish pressure towards 14,000.

DAX 30 Daily chart

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin