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DAX remains weaker after US job market data

While the NFP number disappointed, the overall tone of the report was very positive, reinforcing the need for a rate hike in March.

German DAX was down for the third consecutive day on Friday, falling half a percent and trading at around 15,950 EUR after US labor market data.

Expectations not matching the reality

Expectations were huge heading into today’s job market update for December. However, the reality was harsh. Moments ago, the Bureau of Labor Statistics reported that in December, 199,000 jobs were added, a huge miss to expectations of 400,000 and the lowest number since December 2020.

The November payrolls data was revised higher, rising 39,000 from 210,000 to 249,000. Still, the unemployment rate improved markedly, falling to 3.9% from 4.2% and below the estimate of 4.1%. At the same time, labor force participation remained at 61.9%.

Looking at wage growth, average hourly earnings rose 4.7%, which while down from the upward revised 5.1%, was well above the 4.2% expected.

The headline NFP number was feeble, but the labor market in general strengthened in December, as seen from the falling unemployment rate and rising wages. It should still be enough for the Fed to hike rates in March. The market-implied chance for that to happen has shot sharply higher to 90%.

This is a green light for March. The U3 unemployment rate plunged 0.3ppt to 3.9%, 0.4ppt below the Fed’s Q4 2021 estimate and only 0.4ppt above the Fed’s estimate for year-end 2022 Renaissance Macro’s Neil Dutta said after the data.

Therefore, the initial reaction was in the risk-off regime, sending yields higher while stocks were retreating.

From other news, German industrial output dropped 0.2% in November, a sharp decrease from October’s 2.4% gain.

This weakness was also seen in France, where industrial production fell 0.4% monthly in November, after climbing 0.9% in October.

Daily charts points to more weakness

Technically speaking, it looks like a perfect double top pattern on the daily chart, with the resistance near 16,300 EUR. That is a bearish reversal pattern, which could send the DAX notably lower over the next few days.

Moreover, there is a bearish divergence between the price and the MACD indicator, reinforcing the bearish view.

The first line of defense will likely be at 15,800 EUR, while the key support should be at the 200-day moving average at around 15,600 EUR.

Alternatively, if sentiment improved, the initial selling zone should be at 16,000 EUR, followed by the mentioned cycle highs near 16,300 EUR.

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