What’s next? – DAX 01.06.17

DAX

European stocks were mostly higher in early trading on Thursday, with the German DAX index futures adding about 20 percent or 25.5 points at 12,663.5 as of 08:00 GMT.

Economic data in Germany has proven to have little effect on its local stock market. Yesterday, retail sales for April marked a 0.2 percent reduction against expectations for 0.2 percent build. Also, the number of unemployed citizens came down by 9,000 in May, less than an initially expected drop of 15,000 people. The unemployment rate ticked down to 5.7 percent.

Analysts pointed out that no reaction on downbeat data shows investors’ interest is now directed to another factors. From a fundamental standpoint, there are two drivers that matter for the DAX index: the political turmoil that weighs on the Trump administration due to alleged Russian influence in the November elections, and early elections in the United Kingdom.

Today, the only relevant publication on the data front has been the German manufacturing purchasing managers index (PMI) for May, which came in at 59.5 compared to an expected and previous reading of 59.4. Eurozone’s manufacturing PMI showed no changes at 57.0.

The terrorist attack against the Manchester Arena and how the entire situation was taking care of has weighed on the reputation of UK Prime Minister Theresa May. Recent polls showed that May’s position has weakened since the tragedy. If this scenario continues to develop, the euro leadership would be looking at a weaker government to negotiate Brexit, which outlines clear benefits for the bloc and Germany, Europe’s first economy.

For that reason, the DAX index is expected to remain close to the 12,700 mark and possible break above it on any political signals suggesting a weaker position of May ahead of the vote. A break of 12,700 would open the doors to 12,750, although significant bearish pressure could limit the upward movement. The long-term support is now placed at 12,500. A rupture of that level would damage the upside trend considerably, creating momentum for sellers.