European indices: can the DAX make it five from five?

Last week witnessed the DAX concluding higher for a fourth consecutive week. The DAX's upswing can be attributed to tailwinds from Wall Street, an uptick in European PMI data, and escalating expectations of ECB rate cuts in 2024. In the upcoming week, the pivotal economic focus for the EU will be the release of inflation data for November.

The context

In recent months, concerns about potential upside risks to inflation in the medium term have diminished as the ECB's ongoing rate-hiking cycle continues to exert influence. Inflation expectations have reverted towards the target, and in the presence of emerging labor market slack, wages have likely reached their peak.

Presently, the market has priced in three ECB rate cuts between June 2024 and October 2024. However, the timing of the inaugural cut could be accelerated to as early as March if the pace of disinflation and unexpected demand destruction catches market participants off guard.

Anticipated insights from November's EA inflation release

Date: Thursday, November 30 2023 at 9:00 pm AEDT

The Euro Area's headline inflation is projected to decline to 2.7% YoY in November from 2.9%, influenced by the sustained low levels of food and energy prices. Concurrently, core inflation is anticipated to decrease to 3.9% YoY in November from 4.2%, marking its first instance below 4% since June 2022.

DAX technical analysis

The DAX's breakout above downtrend resistance at 15,550 (stemming from the July 16,615 high) and the daily closure above the 200-day moving average, currently at 15,748 in mid-November, provided substantial confirmation that the correction in the DAX concluded at the late October 14,666 low.

While maintaining a bullish outlook through year-end, we refrain from considering new long positions at these levels following a robust upward trend, especially in anticipation of month-end rebalancing flows and crucial EA and US inflation data.

Instead, our preference lies in capitalising on retracements towards the 15,750/550 support range, anticipating a retest of the July high at 16,615 in the upcoming weeks. This strategic approach aligns with our forward-looking market analysis and risk management considerations.

DAX daily chart

FTSE technical analysis

The UK's growth profile remains sluggish, mirroring the subdued price action in the FTSE. From a technical standpoint, the FTSE is currently confined within a range, finding support above the horizontal level at 7200 and encountering resistance between approximately 7650 (derived from the February 8047 high) and the 200-day moving average at 7600.

A sustained break above the resistance layers at 7600/50ish for the FTSE could pave the way for a retest of the February 8047 high. It's important to note that until this breakthrough materialises, further range trading is likely, with the possibility of a retest of the range lows at 7200.

FTSE daily chart

• _{Source Tradingview. The figures stated are as of 28 November 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}