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DAX struggling at 50-day average

EU bourses are lagging behind their US counterparts. Will today's US session help them higher?

German Dax index is trying to jump above its 50-day moving average on Monday. At the time of writing, it was trading somewhat higher on the day, last seen at around 15,600 EUR.

German IFO surveys came out weaker-than-expected earlier in the day as the expectations sub-index dropped to 95.4 in October, down from 97.4 previously. Likewise, the business climate gauge declined to 97.7, below 98.9 printed in September. The current assessment index also slowed to 100.1. The Euro fell some 30 pips after the numbers and traded at daily lows near 1.1625, helping the DAX index slightly.

Supply chain problems are causing trouble for companies, production capacities are falling. In the manufacturing sector, business sentiment has fallen, same with services and trade. German economy is facing an uncomfortable autumn, the IFO institute’s Economist Klaus Wohlrabe said after the release.

There is usually a negative correlation between the Euro and German export-oriented stocks. Therefore, when the Euro declines, the DAX index is often in a bullish regime.

There are no other macro data on the agenda today, leaving trading to technical factors and sentiment for the rest of the day. However, since the US markets are trading near all-time highs, the bull market might continue, possibly helping the EU indices.

From other news, the European Central Bank (ECB) Governing Council member and Spanish central bank chief Pablo Hernandez de Cos said Monday that supply chain problems and rising raw material prices affect negatively economic recovery pace. So likely we’ll keep observing relatively high inflation rates in coming months.

ECB takes center stage

The European Central Bank will decide about monetary policy Thursday , likely leaving all settings unchanged. Thus, monetary policy will remain highly loose, further supporting risk assets such as stocks and commodities.

Judging from the recent comments by the ECB governors, the central bank will be in no rush to tighten monetary policy. On the other hand, the Fed is expected to start tapering in November, with the process likely ending in July. Additionally, markets are currently pricing nearly two rate hikes in 2022, causing a significant divergence between the EU and the US in their respective monetary policies.

In that scenario, the EUR/USD pair might continue trending lower, further supporting German stocks.

Daily chart remains bullish

Technically speaking, the DAX index needs to rise above the strong resistance at 15,600 EUR . Then, if bulls are successful, the index might continue toward its all-time high near the 16,000 EUR threshold.

Alternatively, if bears defend the 50-day moving average, we could see some frustration among bulls and a possible correction toward the last week’s lows near 15,400 EUR.

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