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• European major stock indices extended gains on Thursday, with the DAX advancing by approximately 0.9% and the STOXX 600 climbing 0.6%, driven by positive corporate results and anticipation of the impending US Consumer Price Index (CPI) release.
• Notable performing sectors include consumer cyclicals, financials, and real estate, contributing to the market’s upward momentum.
• Luxury and travel shares, such as Hermes (1.6%), LVMH (2.2%), and Air France-KLM (1.3%), also posted gains following China’s announcement of the relaxation of pandemic-related restrictions on group tours for multiple countries.
• Henkel’s shares surged over 1.5% after raising its 2023 guidance, while Allianz and Zurich experienced over 2% gains due to better-than-expected quarterly results.
• Conversely, Siemens’ shares declined by about 3.8% after reporting lower-than-expected profits despite noting demand for “normalization,” particularly in China.
• Rheinmetall’s shares dipped nearly 3%, even with reported growth in quarterly operating earnings.
• The euro rebounded above $1.1 against the dollar as investors turned away from the dollar in anticipation of the upcoming US CPI report, poised to influence the Federal Reserve’s forthcoming monetary policy decision in September.
• In Europe, market expectations suggest that the European Central Bank (ECB) may raise rates further this year and maintain them at an elevated level for an extended period, supported by data indicating Euro Area core inflation did not slow in July as initially projected.
• Amid concerns about the US banking sector and economic uncertainties in China, investors presently appear to prioritize positive earnings and overlook some uncertainties.
• The yield on the German 10-year Bund inched up to 2.5% from a one-week low, with a market focus on the direction of monetary policy.
• The ECB’s decision to increase its key rate by 25 basis points reflects a proactive stance, with the potential for additional hikes if deemed necessary to manage persistent inflation amidst energy price decreases.

The STOXX Europe 600 index is grappling with a recent swing failure in the short-term perspective, a technical occurrence that could exert downward pressure on prices. Nevertheless, the prior double distribution profile and the market’s previous surge above the upper distribution suggest a potential bullish undertone for the session. This is further supported by a weaker dollar, which adds an additional layer of support.

On the daily interval, the STOXX index is trading within a balanced price range. Traders may leverage the current upper extreme as a reference point to anticipate a rotational move lower, while keeping an eye on the possibility of targeting the highs for absorption.

A notable factor to watch is the forthcoming US CPI data release. A higher print could introduce pressure due to its implications for the monetary policy, potentially prolonging elevated interest rates. Conversely, a lower CPI figure might signal a potential easing of the tightening cycle, thus fostering a bullish sentiment.

2 Weeks Ago

In the forex market, the euro saw a notable upward surge against the dollar in the overnight session. However, the market could experience euro long liquidation, potentially coupled with absorption around the current highs. This scenario might trigger a broader pullback, with core dollar long positions being established, contingent on the outcome of the impending CPI data.

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