DAX Tests Previous Bearish Trendline

Earlier today, US durable goods orders surged 0.7% monthly (with a small downward revision from 0.5% to 0.4% in April). Ex Transports, orders rose 0.7% MoM - beating expectations of 0.3%. The value of core capital goods orders, a proxy for investment in equipment that excludes aircraft and military hardware, rose 0.5% after a 0.3% gain a month earlier.

German DAX traded weaker after the data, down 0.15% and completely erasing earlier gains.

Consumers feel the pain of inflation

According to a recent Gallup survey, consumer confidence is at its lowest level since the Great Recession. At the same time, the consumer sentiment score from the University of Michigan for June also reached a record low.

"With the second half approaching, warning lights continue to flash across hardline retail. Inflation is accelerating, mortgage rates are +300bps year to date, and consumer spending/savings is 'normalizing' back to pre-pandemic patterns," said Wells Fargo analyst Zachary Fadem in a new note.

Falling Wedge pattern?

The 4-hour chart seems like a falling wedge pattern, a bullish reversal formation. The DAX index currently sits above the broken trendline, thus, confirming the breakout from the pattern.

The next target for bulls could be at previous highs near 13,435 EUR. As long as the index trades above the support of 13,000 EUR, the immediate trend could be bullish.

Moreover, a bullish divergence between the RSI indicator and the price supports the current optimistic setup.