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DAX drops below 14,000 EUR as traders mull ECB decision

Traders did not like the recent ECB decision, sending both EUR/USD and DAX index lower.

German DAX index was down for the third consecutive day, falling below the psychological level of 14,000 EUR as investors seemed disappointed following the latest ECB decision.

ECB fails to deliver

On Thursday, the ECB kept its interest rates steady. However, the central bank’s asset-purchase program came to an end. As of July 1, 2022, the Governing Council decided to terminate net asset buys under its asset purchase program (APP).

However, there were no suggestions of imminent quantitative tightening, which would include selling bonds off the Bank’s balance sheet, something the Fed has previously indicated.

“For a lengthy period of time, the Governing Council expects to continue reinvesting in full the principal payments from maturing securities bought under the APP.”

You may also read: ECB will raise interest rates in July

“Accordingly, and per the Governing Council’s policy sequencing, the Governing Council aims to raise the main ECB interest rates by 25 basis points at its July monetary policy meeting,” the ECB said. As massive inflationary pressures continue to build in the eurozone, investors had hoped for a 50 basis point rate hike.

In addition, the ECB increased its inflation forecasts while cutting its growth forecasts.

Annual inflation is expected to be 6.8% in 2022 before falling to 3.5% in 2023 and 2.1% in 2024, according to the revised staff predictions, which are higher than the March estimates.

On the other hand, the European Central Bank has cut its growth forecast for 2022 to 2.8% from 3.7%, and for 2023 to 2.1% from 2.8%. In addition, the 2024 percent rate has been raised to 2.1% from 1.6%—soaring inflation and falling economic growth, what a nice combo for European countries.

Overall – slow and small rate hikes, rising inflation, and falling growth expectations resulted in a nasty drop in the EUR/USD pair, but DAX declined as well.

US inflation in focus

The newest inflation data from the United States will be on the table later today. According to investors, the annual CPI in the United States is expected to stay at 8.3% in May, while the Core CPI is expected to drop to 5.9% from 6.2%.

The DAX is about to test the medium-term uptrend line from previous lows, around 13,900 EUR. If the index drops below that support, the medium-term trend could change to bearish, targeting May lows in the 13,400 EUR area.

Alternatively, the short-term resistance could be at 14,000 EUR, followed by another selling zone near 14,280 EUR.

DAX daily chart, Source: Author´s analysis, tradingview.com

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