DAX Rallies on Weaker EZ CPI

Euro Stocks UpThe DAX is pushing higher today on the back of the latest set of eurozone inflation figures released this morning. The index is still down around 2% from the week’s highs but has recovered more than 1% so far. The flash eurozone CPI reading for December came in at 2.9% on the headline reading, below the 3% the market was looking for while the core reading slipped to 3.4% from 3.6% prior.Rate Cuts in FocusIn all, the data is broadly supportive of the idea that the ECB will begin reversing its post-pandemic tightening cycle this year. Currently, the market is projecting the first rate cut to come in April. Should we start to see rate cut pricing brought forward, however, this would be firmly bullish for DAX and wider eurozone stock markets with EUR likely to soften accordingly.Dovish ECB SignallingA recent shift in tone from the ECB has been welcomed by stock bulls. With many at the bank now publicly supporting rate cuts, the backdrop has become more supportive for bulls. However, as expectations begin to become more entrenched, this opens up downside risk for the DAX and other indices if we see any sudden shifts in the narrative. The key elements to focus on therefore will be incoming data, particularly inflation data, and ECB commentary.Technical ViewsDAXThe rally in the DAX has stalled for now with 16997.55 marking the high watermark for 2023. Price is now fast approaching a test of the 16312.43 level which bulls will need to defend to maintain the bullish outlook. Should price slip below this level, however, focus will shift to 15642.76 as the next key support to watch.