Piece written by Alexa Smith, Trive Financial Market Analyst
The GER 40 Futures (EUREX: FDAX) have resumed their descent, prompted by indications from the European Central Bank (ECB) that inflation projections for the year 2024 will persist at levels exceeding 3%, thereby reinforcing expectations of an impending interest rate hike at the upcoming meeting scheduled for Thursday.
The ECB has pursued a consistent path of rate increases over its last nine meetings, and should another 25 basis point increase materialise; it would raise the key deposit rate to 4%. Meanwhile, Euro Zone Industrial Production data has tipped the index futures further into the red, slipping lower than expected. On a monthly basis, industrial production in Europe declined by 1.1% in July from a rise of 0.4% in June, while year-on-year industrial production tumbled by 2.2% in July from a 1.1% drop in June.
Technical
An ascending channel pattern ended abruptly as the GER 40 Futures broke down the channel’s lower boundary at the 15782 level. Since this level coincided with the 50-day moving average line, a move lower spurred a pullback towards the 15603 support, bringing the index in line with the current level. If a breakdown of the 15603 support occurs, the index futures may be encouraged to retest the 15524 major support due to a move towards oversold levels.
However, the 15603 or 15524 level could hold and spur upward momentum towards the 15782 resistance at the 23.60% Fibonacci Retracement. In this case, a move above the 50- and 100-day moving averages could promote a reversal towards the 16070 resistance at the 50% level as the 50-da moving average line edges above the 100-day moving average.
Summary
The GER 40 edged lower in anticipation of an interest rate hike from the ECB tomorrow. If the ECB hikes rates, the index futures may be encouraged to retest the 1552 major support. However, industrial production data could tip the scale in favour of a pause and edge the price action towards the 15782 resistance.
Sources: TradingView, Reuters
