FTSE and DAX march higher but for how long?
The German index rallied to a fresh 15-month high overnight ahead of tonight's release of final German inflation data.
A softer open is likely today for key European indices after the release of the FOMC meeting minutes late in the New York Session. The minutes upended an early rally on Wall Street and noted that the banking crisis would likely send the US economy into recession.
"Given their assessment of the potential economic effects of the recent banking-sector developments, the staff's projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years."
Whether the mention of recession will be enough to see the German index end its stellar run in the medium term remains to be seen.
Ahead of the release tonight of final German inflation data, the DAX rallied to a fresh 15-month high overnight and is expected to confirm that inflation fell to 7.4% in March from 8.7% the previous two months.
Additionally, the release of the final PMIs last week indicates robust 1Q 2023 GDP expansion.
Uncomfortably high inflation in the UK (last at 10.4%) and tepid growth prospects mean the FTSE hasn't received the same level of investor support from its March lows as its German counterpart. Tonight sees the February monthly GDP data release which is expected to rise by 0.1% m/m.
Economic growth in the three months to February is forecast to fall -0.1% q/q in Q1 2023.
DAX technical analysis
Another week, another fresh cycle in the DAX!
While we aren't interested in fighting the rally, we doubt its longevity due to the bearish divergence via the RSI indicator and the formation of another bearish or "loss of momentum" type reversal candle at last night's 15,977 high. Our bias remains for a pullback towards an uptrend and horizontal support at 15,000 in the sessions ahead.
Should the DAX see a sustained break below 15,000, it would warn that a deeper pullback is underway towards the March 14,617 low with scope to the 200-day moving average at 14,056.
DAX daily chart
FTSE technical analysis
In recent sessions, the FTSE has rallied further than expected and broken back above horizontal support 7700 area.
Nonetheless, we continue to view the rally from the March 7206 low is viewed as Wave B or the second wave of a three-wave correction. It is expected a third leg (Wave C) to commence shortly towards support at 7100/7000 in the weeks ahead.
FTSE daily chart
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