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DAX Index Attempts Reversal As Eurozone Industrial Production Improves

The DAX index climbed by 0.83% on Monday to stand at 18,477, as it continued its attempt to reverse from its recent five-month lows. The index lost more than 2% of its value in the last three trading sessions, resulting in the first consecutive three-day loss since January. Nonetheless, it is 7.85% YTD, making it a good buy for investors. Auto stocks have risen significantly in the last 24 hours as of this writing, with Volkwagen at +0.20%, Porsche up by 1.25%, Daimler up by 1.28%. Meanwhile, software company SAP’s stock was up by 0.69%.

Investors will react to the latest Eurozone industrial production figures, which showed an improvement in industrial output. The economic block’s industrial production increased by a forecast-equaling 0.8%  month-on-month in February, up from January’s 3.0% contraction. However, the annualized industrial production figure was a contraction of -6.4%, a slight improvement from January’s -6.6%.

The ECB’s monetary policy will influence investor positions in the coming weeks, but there is growing consensus that the first rate cut will likely come in June.  The ECB retained interest rates at 4.5% in last week’s announcement, but there is strong evidence to favour an interest rate cut in June.  

The Eurozone’s inflation figures have been steadily declining towards the ECB’s target rate of 2%, and this could support cuts in June. Low interest rates typically spur gains by the DAX index as investors position themselves for increased liquidity in the Eurozone economy.  The dollar’s strengthening against the euro also favours exports. The dollar is up against the euro by 1.25% month-to-date, providing support for DAX index upside. Looking ahead, ECB Executive Board member Philip Lane will issue a speech expected to five some hints on monetary policy direction.

Technical analysis

The momentum on the DAX index favours further advances to the upside if the bulls keep the price above the 18029.28 pivot mark. That could see them breach the 18120.85 resistance, which could build the momentum to hit 18200.27 in extension.  However, if DAX moves below 18029.28, it will favor the bears to be in control, with the first target being at the 17952.57 support. A continuation of control by the sellers could see them break the support, moving the next target to 17863.