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DAX plunges to short-term support after EU data

Today's mood in the markets remains gloomy, with investors selling stocks and buying the USD.

The German DAX index traded notably lower during the Frankfurt session, but bulls jumped back in and bought the dip, trying to erase daily losses.

Manufacturing sector weakens, and services improve

The preliminary industrial activity report from S&P Global/BME indicated on Tuesday that the decline in the German manufacturing sector unexpectedly increased in February, even as supply constraints swiftly resolved.

This month, the Manufacturing PMI in the economic powerhouse of the Eurozone came in at 46.5 against 47.8 anticipated and 47.3 before. As a result, the indicator reached its lowest level in three months.

The Services PMI increased from 50.7 in December to 51.3 in February, above the average prediction of 51.0. The PMI reached its highest point in eight months. Furthermore, In February, the Eurozone Manufacturing PMI came in at 48.5, compared to 49.3 anticipated and 48.8 before. The indicator hit its lowest level in two months.

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The bloc’s Services PMI reached a new eight-month high in February, rising to 53.0 from 51.0 in January and 51.0 in February. As a result, the S&P Global Eurozone PMI Composite increased to 52.3 from 50.6 expected and 50.3 before. The indicator reached a fresh nine-month peak.

“Growth has been buoyed by rising confidence as recession fears fade and inflation shows signs of peaking, though manufacturing has also benefitted from a major improvement in supplier performance.” Chris Williamson, Chief Business Economist at S&P Global, said after the data.

Geopolitical issues weigh on sentiment

The markets are particularly cautious as Russian President Vladimir Putin is scheduled to deliver a speech later in the day as his invasion of Ukraine approaches its second year.

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Furthermore, during the Munich Security Conference, Secretary of State Antony Blinken informed China’s senior diplomat, Wang Yi, that they had intelligence indicating that Beijing intended to offer military support to Russia.

According to Russian news reports, Wang Yi would visit Moscow on Tuesday and maybe meet with Russian President Vladimir Putin to discuss the same issue.

Monday, US President Joe Biden visited Ukraine unannounced, extending his assistance for as long as needed.

Following today’s data, the DAX index dropped to the short-term trend line, where the 21-day moving average is also located. However, that support has offered enough buying power, and the index has jumped higher from that region. Thus, the outlook remains bullish.

However, there is a notable bearish divergence between the price and the RSI indicator, suggesting that bullish momentum might wane, with a possible correction lower in the next few days.

DAX index daily chart

DAX index daily chart, source: author´s analysis, tradingview.com

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