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DAX 40 Struggles as Nord Stream Shutdown Deepens Energy Woes

DAX 40 Struggles as Nord Stream Shutdown Deepens Energy Woes

Zain Vawda, Analyst
  • Energy Prices Soar, German Power up 16%. Benchmark Year-Ahead Price Jumped 21%.
  • Eurozone Retail Sales Ticked up in July but Downward Trend Remains.
  • Year-to-Date Lows in Sight.
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DAX 40: Struggles as Nord Stream Shutdown Deepens Energy Woes

The DAX struggled in early trade declining around 100-odd points before paring losses as we approach the afternoon session. The negativity around the open can be attributed to an announcement by Russia late on Friday that one of its main supply pipelines to Europe would remain shut indefinitely, scrapping a Saturday deadline for gas flows down the Nord Stream pipeline to resume. This could be seen as some form of retaliation by Russia as the announcement came on the back of the G-7 finance ministers agreeing on a plan to impose a price cap on Russian oil exports.

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As markets digested this announcement, we saw gas prices surge more than 30% in early trade with policymakers now grappling with ways to curb demand and wild market swings. German power for next month rose as much as 16%, while the benchmark year-ahead price jumped 21% to 615 euros per megawatt-hour. Storage sites in Germany are now 86% full keeping it on course for its 95% target, according to Gas Infrastructure Europe. European energy ministers are set to discuss radical proposals to curb power prices when they hold an emergency meeting on Friday, including gas-price caps and a suspension of power derivatives trading.

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Eurozone retail sales ticked up in July yet failed to beat estimates which keeps it in line with the downward trend seen in recent months. A strong increase in Germany and the Netherlands masked declines in the other large eurozone markets.Don’t expect this to be the start of a sustained upturn in sales. The outlook remains rather bleak for the months ahead as real incomes go through an unprecedented squeeze due to high inflation and lagging wages. The expectations are for consumption to contract in the coming quarters on the back of this which doesn’t bode well for corporates.

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DAX 40 Daily Chart – September 5, 2022

Source: TradingView

From a technical perspective, we had a shooting star candle close last week which failed to close above the gap of the prior week. Given the significant downside move we could see some upside early in the week before heading toward the year-to-date lows.

On the daily timeframe we have seen a rejection the key 13000 level three times in the past week, each time failing to close above. Indications that buyers are not convinced in a sustained upside move yet. We trade below the 20,50 and 100-SMA while the downward gradient of the MA’s does not bode well for the index.

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Key intraday levels that are worth watching:

Support Areas

•12585

•12376

•12200

Resistance Areas

•12771

•12850

•13000

Germany 40 Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -2% -6% -3%
Weekly 1% -13% -3%
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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