DAX 40 Retreats as Chinese Economic Outlook Weighs on Sentiment

• European Power Prices Soar Higher.
• Rhine River Levels Remain a Concern.
• Chinese Economy Sounds Warning Around Growth Prospects.

DAX 40: Retreats as Chinese Economic Outlook Weighs on Sentiment

The DAX retreated in European trade as a combination of technicals and a shift in global sentiment halted the index’s rally. Economic data released earlier Monday showed China’s economic growth rate unexpectedly slowing in July, prompting the country’s central bank to cut key lending rates in a surprise move. China’s economy, the world’s second–largest, is struggling to shake off the June quarter’s hit to growth from strict COVID restrictions. A slowing Chinese economy does not bode well in what could be seen as an ominous sign for global growth heading toward 2023.

European power prices meanwhile continued their march higher as natural gas extended gains, deepening the energy crunch that’s threatening to plunge the region into a recession.Next-year electricity rates in Germany advanced as much as 3.2% to 475 euros ($485) a megawatt-hour on the European Energy Exchange AG with the price doubling in the past two months alone. The market is being driven by concerns over whether Europe’s tight gas supplies will be able to generate enough electricity this winter. European governments are looking at ways to ease and assist the public with soaring energy prices as there is no clear sign of when the rally could stop.

Understanding Inflation & its Global Impact

In corporate news, Henkel (HNKG_p) stock rose 0.4% after the German consumer-goods company announced an increase in sales for the first half of the year but earnings fell, hurt by increasing raw-material and logistics prices.

With strong technical roadblocks just above the current price all eyes will be on the 14000 psychological level, which has a host of confluences. A sustained break above (either a daily or weekly candle close) at this stage seems unlikely without any significant catalyst. Something in a similar mode to the softer US CPI print on Wednesday.

DAX 40 Daily Chart – August 15, 2022

Source: TradingView

From a technical perspective, Friday’s weekly candle close saw us post 4 consecutive weeks of bullish price action and higher prices as the bullish rally gained steam. The weekly and daily candle closed without any upside wick indicating buyers were firmly in control. The toughest test yet for the index rests at the key psychological 14000 level, which presents a host of confluences including the 61.8-76.4% fib retracement level, trendline resistance as well as the fact that we have traded below the level since the 10th June 2022.

DAX 40 1H Chart – August 15, 2022

Source: TradingView

On a 1H chart we have seen a double top formation at the trendline as we pushed lower in European trade. We are currently resting on 1H support as well as the 50-SMA. A 1H break and close above the trendline could lead us higher, however since it is a daily trendline a daily break and close would be preferred. A 1H candle close below the 13740 level would invalidate the 1H bullish trend and could see us retest a lower support level at 13650.

Key intraday levels that are worth watching:

Support Areas

•13650

•13500

•13275

Resistance Areas

•13880

•14000

•14156

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter:@zvawda