GER30 Subdued after the ECB’s Hawkish Cut, but Bulls in Control

  • GER30
    (${instrument.percentChange}%)

GER30 Analysis

The European Central Bank slashed rates on Thursday by 0.25%, for the first time in nearly five years [1]. This ended the tightening cycle that started in July 2022 and produced 10 hikes worth 450 basis points. However, the central bank raised its inflation forecast for the current year (2.5%) and the next (2.2%), following recent elevated CPI and wage prints. As a result, policymakers did not pre-commit to future moves and adopted a reserved stance, with President Lagarde cautioning that "I cannot confirm that it is the dialling-back process that is underway". [2]

Yesterday's decision was largely a hawkish cut, while GER30 comes from three losing weeks and a series of lower highs. These factors could generate further pressure towards the pivotal 38.2% Fibonacci of the April-May surge, but prolonged weakness below this region has a higher degree of difficulty.

On the other hand, the ECB reaffirmed its view that inflation will fall below the 2% in 2026, is still likely to lower rates at least one more time during this year and the less restrictive monetary environment will be tailwind for the stock market. Furthermore, the policy differential with its major peers could weigh further on the Euro and make German stocks cheaper for foreign investors. Things are looking more upbeat for the economy as well, since Germany exited its brief recession.

On the technical front, GER30 defended the aforementioned crucial 38.2% Fibonacci, forming a double bottom and pullbacks contained by that region reaffirm the upside bias. The path of least resistance (technically and fundamentally) is higher, with bulls having the upper hand and the ability to set new records (18,932).

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Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 06 Jun 2024 https://www.ecb.europa.eu/press/pr/date/2024/html/ecb.mp240606~2148ecdb3c.en.html

2

Retrieved 19 Jul 2024 https://www.ecb.europa.eu/press/press_conference/monetary-policy-statement/2024/html/ecb.is240606~d32cd6cc8a.en.html

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