DE30: Auto shares soar, ECB reports underpin euro

Summary:

• European stocks gain a foothold despite quite substantial declines in Asia
• DAX (DE30) moves through its pivotal resistance as auto shares soar on a possible cut of US tariffs on German automakers to zero
• ECB reports send the euro higher suggesting the bank does not want to stay behind the curve

European stock markets have risen sharply at the open downplaying notable declines in China as well as hawkish remarks coming from the European Central Bank which boosted the shared currency yesterday. From a technical standpoint one may notice that the German DE30 has already breached a major resistance placed at 12380 points we have been writing about earlier this week. If this breakout proves to be durable, it could translate into further rises ahead with the next probable resistance line localized at 12550 points.

The DE30 has moved through its crucial resistance line at around 12380 points. Source: xStation5

Looking at the hourly chart of the DE30 we may spot that bulls have quite easily broken a resistance placed at 12380 points shortly after the beginning of trading. As for now, one cannot preclude a pullback toward this level (it’s already become a major short-term support) which would constitute a buying opportunity. If so, buyers may take a stab at moving much higher with targets placed at 12550 points and then 12780 points. Notice that both levels coincide with Fibonacci retracements deriving from the leg lower taking place in June. However, breaking 12550 points could prove to be not so easy as it seems because of a 23.6% retracement of the rally from May 2016 to January 2018. 

Auto shares are soaring in the morning on the back of upbeat comments from Washington regarding tariffs. Source: Bloomberg

Relative outperformance of German auto shares stems from the communique conveyed by the US ambassador to Germany suggesting that Washington would support lowering car tariffs to zero for US and European carmakers. The news is a result of a meeting between the US ambassador and the bosses of Volkswagen, Daimler and BMW as well as the head of parts maker Continental. In addition to the report Daimler (DAI.DE) has also received a positive call from Bankhaus Lampe which has upgraded the stock to buy from hold citing recent price moves (notable falls over June).

Looking beyond the German stock market (up 1% at the time of writing) we can notice that gains are quite widespread across Europe. The French CAC40 (FRA40) is moving up 0.7%, the EuroStoxx50 (EU50) is adding 0.75%, the FTSE100 (UK100) is gaining 0.4% and the most impressive increase has been so far seen in the Italian FTSE MIB (ITA40) rising as much as 1.2%. At the end of today’s morning equity post it’s worth paying closet attention to some rumours regarding the ECB’s monetary policy. According to people familiar with the matter some ECB policymakers perceive a rate hike at the end of 2019 as too late, and therefore a move in September or October next year is on the cards, according to them. As a result the shared currency spiked on Wednesday, but failed to break a 1.17 handle. Notice that even the stronger euro (up 0.25% as of 9:16 am BST) has not been able to abstain equity investors from buying riskier assets as the encouraging report pertaining to German automakers seems to outweigh.