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DAX, DOW and FTSE Retreat as Rate Hike Bets Keep Investors on Edge

DAX, DOW and FTSE Retreat as Rate Hike Bets Keep Investors on Edge

Zain Vawda, Analyst

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DAX 40: Selloff Gathers Pace as Recession Fears Mount

The DAX fell on Thursday along with European sharesas the safe-haven dollar rose after the latest red-hot U.S. inflation reading increased investor fears about Federal Reserve rate hikes and a possible recession. The European Commission cut its forecasts for euro zone economic growth for this year and revised up its estimates for inflation.It also predicts inflation will peak later and persist for longer. The forecasts show a rate of 7.6% in 2022 -- up from 6.1% -- and an average of 4% next year, double the European Central Bank’s goal. The numbers confirm a draft earlier reported by Bloomberg.Germany's benchmark 10-year government bond yield was up 7 basis points at 1.219%.

Red dominates the sectoral breakdown with notable movers Allianz and Deutsche Bank with losses of 3.6% and 3.1% respectively.

DAX 40 Daily Chart- July14, 2022

Source: IG

From a technical perspective, we continued to trade below the psychological 13000 level pushing down with year-to-date lows in sight. Yesterday’s daily candle closed as a hanging man candlestick which indicates potential for further downside. There is the chance of a bounce as we approach year-to-date lows which may provide would-be-sellers a better opportunity.

Key intraday levels that are worth watching:

Support Areas

  • 12550
  • 12386
  • 12000

Resistance Areas

  • 13000
  • 13300
  • 13620

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FTSE 100: Retreats as Stagflation Worries Resurface

The FTSE continued its retreat in European trade falling 1% to post session lows of 7088.69 with car insurers in particular coming under pressure. Car insurers came under pressure after FTSE All-Share listed Sabre Insurance said its 2022 performance will be impacted by the need to reflect “extraordinary inflationary pressures” across its current policies and prior-year claims reserves. Its shares fell by a third. On the housing front, we had a mixed bag of news today as housebuilder Barratt Developments reported fewer home completions than expected in fiscal 2022 as supply chain disruptions and building costs take their toll. Shares in the FTSE listed group dropped nearly 4% after it said build cost inflation had hit 10%, up from around 6% during the period. UK tenants meanwhile face additional cost of living pressures as average asking rents hit a record £1,126 per month, outside London, according to Rightmove.

On a positive note, fewer UK firms said in June they expected to raise prices compared to May, according to the latest business insights survey from the Office for National Statistics. Perhaps a hopeful sign for inflation?

Other notable movers on the day include Admiral Group Plc the biggest faller in the blue-chip index, down 13.38%.

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FTSE 100 Daily Chart - July14, 2022

Source:IG

The FTSE closed last week as a hanging man candlestick signaling last week’s upside move may be short-lived. Yesterday we closed as a hanging man candlestick on the daily timeframe confirming the market’s continued indecision and potential decline. As we push lower nothing much has changed until we have a candle break and close below the psychological 7000 level. Should we bounce here and fail to break we may continue our most recent rangebound price action between the 50% and 0% fib levels.

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Key intraday levels that are worth watching:

Support Areas

  • 7012
  • 6870

Resistance Areas

  • 7144
  • 7214

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DOW JONES: Tumbles as US PPI Rises Adding Pressure of the FED

The Dow fell 450 points in premarket trade with investors digesting roaring inflation as well as disappointing earnings from banking giant JPMorgan. The bank temporarily suspended share buybacks and reported second-quarter results that fell short of analysts’ estimates, driving the stock lower.

This could embolden the Fed to act more aggressively when it holds its next two-day meeting later this month, attempting to curb these price rises even at the risk of sending the world’s largest economy into recession. It raised rates a 0.75-percentage-point in June and was widely seen heading in that direction again before the CPI release. But now the possibility of a 1% rate hike looms large, especially after Atlanta Federal Reserve President Raphael Bostic said "everything is in play.

U.S. producer prices rose by more than expected in June, piling more pressure on the Federal Reserve to raise interest rates to bring inflation down.The price of goods leaving the factory gate rose by 1.1% from May, more than the 0.8% expected, and an acceleration from 0.9% in May. May's figures, too, were revised up a shade which is certain to crank up the pressure even further on the US Federal Reserve’s policy decisions.

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DOW JONES Daily Chart – July 14, 2022

Source: IG

From a technical perspective, yesterday saw price push lower and close below our support area (grey box). We have retested the support area in European trade before pushing lower below the 23.6% fib level. Based on the larger structure on the daily timeframe we look likely to create a new lower low and retest our pre-covid highs. We do have support at the psychological 30000 level while a push higher may provide would-be-sellers a better opportunity.

Key intraday levels that are worth watching:

Support Areas

  • 30080
  • 29600

Resistance Areas

  • 30760
  • 31000
  • 31350
Wall Street Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 11% 3% 5%
Weekly 18% -15% -8%
What does it mean for price action?
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Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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