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DAX, Oil Forecast: Two trades to watch

Monday 10:34 AM

DAX rises after PMIs improve, inflation data is due

  • German Services PMI rises to 51
  • German CPI is expected to rise to 2.4% from 2.2%
  • DAX tests 20k resistance

On the first proper day back since the Christmas and New Year break, the DAX and European stocks are heading higher, taking their cues from Friday's positive close in the US and following upbeat PMI figures.

German services and composite PMIs came in stronger than forecast, with services rising to 51.2 in December from 51. The composite PMI showed that business activity contracted at a slower pace, rising to 48 from 47.8. The level 50 separates expansion from contraction.

The improvement was largely attributed to progress in backlogs as new business inflows continued to fall. The fragile economic outlook supports the view the ECB will continue to cut rates.

While the prospect of a dovish ECB continues to provide a lifeline for the DAX, headwinds are also ramping up.

Persistent fears over tariffs ahead of President Trump's return to office on January 20th have weighed on sentiment, limiting the recent upside, as has weaker-than-expected China data. Meanwhile, the German labour market is also showing signs of strain. Recent data showed that German employment increased by 10K in December after a 7K rise in November, although the unemployment rate remained unchanged at 6.1%.

The economic calendar is set to ramp up with German inflation figures due out later ahead of eurozone inflation data on Tuesday. Meanwhile, in the US data builds towards the US nonfarm payroll report on Friday.

DAX forecast – technical analysis

The DAX eased back from 20,500 record high but continues to find support from the 19,600 to 19750 zone. The price has recovered from this support and is attempting to rise above 20k.

A rise above here, accompanied with improving volumes, could help lift the DAX back up towards 20,500 and fresh record highs.

Sellers would need to take out the 19600 – 19750 support zone to create a lower low and expose the 100 SMA at 19,300 and the 19k round number.

Oil eases after 5% gains last week

  • Oil rose 5% last week amid colder weather & China stimulus news
  • Oil struggles amid a stronger USD
  • Oil breaks out of range

Oil prices are inching lower at the start of the new week after booking gains of 5% in the previous week. The strong gains came amid colder weather in the northern hemisphere and amid hopes surrounding additional fiscal stimulus by China.

However, the stronger U.S. dollar at the start of the week is making oil more expensive for holders of other currencies. The US dollar index trades at around a 2 year high against its major peers.

The world's top oil exporter, Saudi Aramco, raised crude prices for Asian buyers in February for the first time in three months, which could limit the downside in oil prices.

The market is focused on more clues from the Federal Reserve and potential impacts on energy consumption. Minutes to the Fed's latest meeting are due on Wednesday, and the non-farm payroll report on Friday could also influence the US dollar and oil prices.

Oil forecast – technical analysis

Oil has broken out of the familiar range within which it hs traded for the past few months. The price broke above the 71.50-72.50 resistance zone, which has capped gains since mid-October.

Bulls, supported by the RSI above 50, will look to push the price higher towards the 75.00 round number and the 200 SMA at 75.50. Above here 77.50, the falling trendline resistance comes into play.

Support is seen at the 71.50 – 72.50 zone, with a break below here taking the price back to its familiar holding pattern.

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