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DAX Remains Under Pressure as Europe’s ’Fear Index’ Hits Six-Week High

DAX Remains Under Pressure as Europe’s ’Fear Index’ Hits Six-Week High

Zain Vawda, Analyst
  • DAX 40 Remains Under Pressure Despite Gains in European Trade.
  • Powell’s Signal of Higher-for-Longer Fed Rates Weighs onSentiment.
  • The Volatility Gauge for Euro-Zone Stocks, ‘Europe’s Fear Index’ Jumped to a Six-Week High of 29.4.

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DAX 40: Downside Pressures Remain Despite a Bounce in European Trade

The Dax opened with a gap of 120 odd points to the downside before rallying to close the gap during European trade with stocks set for a near 3% drop over the last two sessions. The volatility gauge for euro-zone stocks, ‘Europe’s fear index’ jumped to a six-week high of 29.4. Investors were still digesting the hawkish statements from the Federal Reserve's top policymaker as well as the looming shutdown of a key flow of Russian gas supplies.

Weighing on sentiment were the comments from Jerome Powell Chair of the US Federal Reserve, who last week told a symposium in Jackson Hole, Wyoming, that the central bank has no plans for a dovish change in its rate policy and will continue to raise borrowing costs.Powell's comments spurred on bets that the Fed will hike borrowing costs by 75 basis points in September, while rate expectations for the year end now exceed 3%.

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European Central Bank (ECB) officials read from a similar script as the Federal Reserve with Austria’s Robert Holzmann and Dutch colleague Klaas Knot both floated the prospect of a 75bp hike at their meeting in September. Executive Board member Isabel Schnabel warned that the likelihood of inflation expectations becoming unanchored is uncomfortably high. The German 10-year yield jumped by more than 10bp to as much as 1.5460%, setting a fresh two-month high.

Elsewhere, concerns remain about the Eurozone's ability to weather a looming energy crisis,exacerbated by unscheduled maintenance of a key gas supply line out of Russia this week.The potential shortage pushed German power price futures, the European benchmark above EUR1000 for the first time ever.

Looking ahead to the rest of the week, we have several key data events beginning tomorrow.

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On a technical perspective, we had a huge bearish candle close last week which closed as a marubozu candlestick with no downside wick. Such a candle usually indicates further downside ahead which might still occur as the day and week progresses. On the daily timeframe we had a 120 odd point gap down on market open and have since recovered the gap in European Trade.

We trade below the 20, 50 and 100-SMA with the negative gradients hinting at further downside. Given the outlook one would look at rallies as the perfect opportunity for would-be-sellers to get back involved. The most immediate levels of interest rest at the 13000 key psychological level followed by the 13100 level (indicated by the blue horizontal lines on the chart).

DAX 40 Daily ChartAugust 29,2022

Source: TradingView

Key intraday levels that are worth watching:

Support Areas

  • 12725
  • 12584
  • 12375

Resistance Areas

  • 12850
  • 13000
  • 13100

Psychological Levels and Round Numbers in Trading

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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