DAX recovers after rough start to week, Fed rate announcement eyed

The DAX index has posted considerable gains in the Tuesday session, erasing most of the losses seen on Monday. Currently, the index is at 10,818, up 0.70% on the day. In economic news, German Ifo Business Climate dipped to 101.0, down from 102.0 and shy of the estimate of 101.8. This is the fourth straight drop for the indicator, as business confidence continues to weaken. On Wednesday, the Federal Reserve is expected to raise the benchmark rate by a quarter-point.

At last week’s policy meeting, the ECB officially terminated its bond-purchasing program (QE), after three years. The program pumped some 2.6 trillion euros into the economy, and played an important role in boosting growth and inflation levels. However, the move comes at a time when the eurozone economy has slowed down, after a strong performance in the first half of 2018. Final CPI dropped to 1.9% in November, down from 2.2% a month earlier. This was below the initial forecast of 2 percent.

The eurozone slowed down in Q3, and all signs point to weak numbers in the fourth quarter as well. Global trade tensions have taken a bite out of eurozone exports, and uncertainty over Brexit and the Italian budget have soured investor confidence and raised risk apprehension.

All eyes will be on the Federal Reserve on Wednesday, which winds up its rate policy meeting. The Fed is expected to raise interest rates on Wednesday, which would mark the fourth rate hike in 2018. The CME has pegged the odds of a rate hike at 69%, down from 80% just one week ago. A key factor in the drop is the latest sell-off in global equity numbers. The week started poorly, as the S&P fell on Monday to its lowest level since October 2017. Rate hikes are unusual when stock markets are swooning, so traders should be prepared for the Fed to send a dovish message to the markets, along with a quarter-point rate hike.

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Economic Calendar

Tuesday (December 18)

  • 4:00 German Ifo Business Climate. Estimate 101.8

Wednesday (December 19)

  • 2:00 German PPI. Estimate -0.1%
  • 14:00 US FOMC Economic Projections
  • 14:00 US FOMC Statement
  • 14:00 US Federal Funds Rate. Estimate <2.50%
  • 14:30 US FOMC Press Conference

*All release times are DST

*Key events are in bold

DAX, Tuesday, December 18 at 5:15 EST

Open: 10,744 Low: 10831 High: 10,715 Close: 10,818

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.