DAX, Oil Forecast: Two Trades to Watch

DAX slips ahead of inflation data

• DAX extends losses for a second session
• Eurozone inflation is expected to confirm 5.5% YoY
• DAX falls below falling trendline

The DAX points to a weaker open, extending losses of 1% from the previous session after hawkish ECB commentary dragged on the European equity markets.

The ECB raised interest rates last week, and the market had been assuming that this would be the final interest rate hike by the ECB this cycle. However, the governor of the National Bank of Slovakia, Peter Kazimir, adopted a more hawkish tone, saying that it was still too soon to decide whether more rate hikes were needed and the central bank may need to wait until the spring to take such a decision. Higher interest rates for longer raise the threat of a prolonged economic slowdown in Germany and the eurozone.

Looking ahead, attention will be on eurozone inflation figures for August these are the final reading, so may not influence the market as much as the preliminary figures. Expectations are for the data to confirm the preliminary reading of CPI holding steady at 5.3% while core inflation cooled from 5.5% to 5.3%.

looking out across the US session, housing sector numbers could influence investor sentiment. The FOMC 2-day meeting also gets underway today, which could keep the market mood cautious. While the Fed is not expected to hike interest rates this month, resilient data from the US combined with rising oil prices could mean that the Fed will leave the door open for further hikes by the end of the year.

DAX forecast – technical analysis

After struggling to break above the 50 & 100 sma resistance, the DAX is falling, dropping below the falling trend line dating back to the end of July. This, combined with the RSI below 50, keeps sellers hopeful of further losses.

Support can be seen at 15740, last week’s low, with a break below here exposing 15545, the 200 sma, ahead of 15465, the August low.

Any recovery needs to rise above 15770, the falling trendline resistance, and the 20 sma. A rise above here brings 1600 the psychological level and last week’s high into play.

Oil rises on supply concerns, but looks overdone

• Brent rises above $95, and WTI hits a fresh 10-month high
• Supply cuts and deficit worries lift the price
• WIT is in overbought territory

Oil prices are heading higher as WTI closes in on another 10-month high and Brent smashes through $95 the barrel.

Oil's impressive rally has been mainly the product of supply concerns after Saudi Arabia and Russia extended oil production cuts out to the end of the year, a move that OPEC and the IEA say will put the market in a deficit by the fourth quarter.

In defense of the move, Prince Abdulaziz bin Salam, Saudi Arabia's energy minister, said on Monday that the decision to extend oil output cuts was not about lifting prices but stabilising the oil market. Since oil prices were stable at around $70 a barrel in June, his comments have been taken with a pinch of salt.

Meanwhile, U.S. oil output from shale-producing regions is set to fall by 9.3 million barrels per day in October to the lowest level since May.

On the demand side, optimism that China’s economy could be turning a corner, after more robust than forecast data last week is also helping to buoy the oil prices, along with stimulus measures from Beijing.

This week, attention will be on the central bank rate decisions for clues that rate hiking cycles are close to concluding could support oil. Meanwhile, signals of more hikes could pressure the price of oil.

Stockpile data from the API is due later and EIA data is due tomorrow.

Oil forecast- technical analysis

After rising to a fresh 10-month high of 91.85 the price trades above a steep rising trendline; however, the rally looks very overdone, with the RSI still in overbought territory.

Buyers could be looking to stretch the rally towards 93.50, the November peak. However, profit-taking could also step up.

Support can be seen at 90.00, the weekly low and psychological level, with a break below here opening the door to 86.35, last week’s low, and 85.00, the August high.