DAX EUR Update – Reflation Resumes After Nasdaq Collapse, USD Attempted Return

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Key talking points:

  • Inflation fears revive reflation trade, evident in yesterday’s fall of the Nasdaq
  • DAX 30 expected to face increased selling pressure as tech stocks relax
  • EUR / USD retains Friday’s gains, but USD could prepare for comeback

The European and US indices stepped up sales yesterday, with the Nasdaq falling 2.9% and closing the session at its daily low, causing trading to weaken again this morning. After disappointing jobs figures on Friday saw yields retreat, inflation concerns appear to be returning to the table and the main cause of yesterday’s selloff.

The Fed had previously warned it was waiting a few months of solid jobs data to start considering a change in monetary policy, so Friday’s disappointing numbers only played into Powell’s speech on the economic landscape. still in a difficult position. Regardless, investors had already positioned themselves for a robust post-pandemic recovery, so the big lack of jobs data caused real returns to drop below the level seen during the taper tantrum. of 2013, the all-time low before Covid-19 occurred.

But that doesn’t stop investors from worrying about rising inflation again, as they expect the Fed to keep rates hanging longer. CPI numbers are likely to come back hot this week, but the question is whether inflation is going to be transient, as the Fed has insisted, or if it will be much more persistent. And we probably won’t know until the end of summer.

DAX 30 levels

The DAX 30 is feeling the heat of the collapse of the Nasdaq because it is the most technological index in Europe. The rotation from safe stocks that dominated during the pandemic to cyclical stocks began in November when a successful vaccine trial started the reflation trade. The rotation appears to be resuming after a pause, which coincided with a pullback in the bond market, and the DAX is likely to be the European index that will suffer the most from this situation.

Looking at last week’s pullback (May 4e) the ascending trendline that I had mentioned as support was working very well, confirming this area as a key support for the future. For today’s session, if the DAX falls below the 50 day SMA (15,092), then 15,000 – 14,966 would be the next area that buyers should focus on. If that doesn’t hold up, the way is wide enough. towards the 14,500 mark. On the upside, the 15,500 line remains strong resistance.

DAX 30 Daily graphic

EUR / USD levels

EUR / USD managed to take advantage of weak US dollar after Friday employment data, pushing back above 1.21 after a week of bearish pressure. But without Friday’s performance, the pair would likely still struggle below 1.21 as the euro has been unable to maintain its recent bullish momentum.

Yesterday’s session saw EUR / USD bounce off the upper bound of its Bollinger Band, bringing it back in line with its recent range. So far this morning there appears to be enough support at the 1.2121 level, an area of ​​earlier importance, to keep the par at bay, but the correction could intensify if the US dollar manages to recover. foot. If so, a drop below 1.21 could cause additional selling pressure until the pair breaks back below 1.20, where significant support is found at 1.1980.

EUR / USD daily chart

DAX EUR Update - Reflation Resumes After Nasdaq Collapse, USD Attempted Return

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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