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DAX 30: Will Cutting Rates and Adding More QE Be Enough?

DAX 30: Will Cutting Rates and Adding More QE Be Enough?

2016-03-10 09:52:00
Alejandro Zambrano, Market Analyst

Talking Points

  • The DAX 30 is muted as traders appear to be waiting for today’s ECB meeting.
  • The deposit rate is expected to be reduced by 10 bps, and it is likely that QE will be expanded by 15 billion euros, with 2/3 of economists expecting a tiered deposit rate to be introduced (Bloomberg news poll).
  • The overall trend is bullish since mid-February.

The DAX 30 is trading sideways this morning as traders appear to be waiting for the outcome of today’s ECB meeting.

A Bloomberg News poll projects the ECB Deposit Facility Rate to be reduced from -0.3% to -0.4% and for asset purchases to be increased by 15 billion to 75 billion Euros a month.

On both the ECB meeting and exceeding economists’ expectations, the DAX 30 may gain as lower interest rates would potentially help firms and consumers. This is the traditional way stock markets tend to react.

The caveat today is how bank shares will react to the looser monetary policy, as both the negative deposit rate and low longer-term-rates (suppressed by QE) start to hurt bank profitability. The actions of the ECB may therefore lower the value of the DAX 30 instead of lifting it.

One way to elevate the pressure on the banking sector is to introduce a tiered deposit rate, or something similar, upon which 2/3 of economists are waiting.

For a complete list of today’s macro-economic reports please see our calendar.

Technical outlook

The overall trend is bullish since mid-February.

A break to the January 27 high of 9931 may generate enough momentum to lift price to the January 13 high of 10,164. A failure to breach the January 27 high of 9931 may trigger lower prices and the DAX may not bounce until it reaches the 9336 to 9500 range as the risk/reward ratio favors bullish positions in this range. Were we to see a breach to the February 29 low of 9336, the short-term trend may end and price may reach the February 24 low of 9112.

Download the DailyFX Analysts' 1Q forecasts for the Dollar, Euro, Pound, Equities and Gold

DAX 30 | FXCM: GER30

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Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano

--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com

Contact and follow Alejandro on Twitter: @AlexFX00

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