GER30 Down as Producer Inflation Bites

GER30 Analysis

Factory gate inflation jumped to new record highs in Europe's largest economy in August, in a big beat not only compared to prior readings, but also against expectations.

Germany's Producer price Index soared 7.9% month-over-month, from 5.3% prior, while on yearly basis it surged 45.8%, from 37.2% prior. The increase in energy prices was the main culprit, which were up 139% compared to August of 2021 and 20.4% compared to July 2022, according to the federal statistics agency. [1]

Moreover, natural gas prices (distribution) rose 209.4% year-over-year and power plants had to pay 269.1% more for natural gas, as the Nord Stream pipeline remains closed since the end of August.

Earlier in the month, the Consumer Price Index had surged in both Germany (+7.9% y/y) and Eurozone (+9.1% y/y), while the European Central Bank (ECB), had delivered a historic 75 basis points rate hike in order to bring inflation down. More to it, officials pointed to further tightening ahead, despite the projected economic slowdown. [2]

This creates an unfavorable environment for GER30, which is having a volatile start to the week, as it drops today, despite Monday's positive turnaround. Bears retain control and the ability to push for fresh 2+year lows (12,373), but it may be early to talk about sustained weakness below 12,135.

Despite the ECB's hawkishness and fears that Russia may completely cut off energy exports to Europe, GER30 shows resilience this month, while further Euro weakness could be supportive.

As such, it may get the opportunity to tackle the EMA200 (at around 13,100) - closes above which would pause downside bias. However, the upside looks unfriendly as the Daily Ichimoku and the descending trendline form the 2022 high (12,540-12,600) set imposing roadblocks, with the 200Days EMA following.

Nikos Tzabouras

Senior Market Specialist

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 20 Sep 2022 https://www.destatis.de/EN/Press/2022/09/PE22_397_61241.html;jsessionid=BBA8D8E70F034E1167C2337B4082CE1A.live731

2

Retrieved 25 Sep 2022 https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.mp220908~c1b6839378.en.html

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