DAX forecast: Stocks extend bounce as Trump says trade ball in China’s court

After a brutal three-day selloff—the worst since 2020—global equities showed the first significant signs of recovery on Tuesday. A flicker of optimism emerged following speculation about renewed US trade talks. Trump hinted at a willingness to negotiate with China and said several other countries want to make a deal. But let’s not get too excited. There's still no clarity on what Trump actually wants in return for lifting tariffs. Meanwhile, threats of a 50% levy on Chinese imports continue to hang over the markets, and this has been particularly bad news for the Chinese yuan. Today saw offshore yuan hit a new record low. China’s hard stance is adding to the uncertainty, and despite today's bounce, the DAX forecast is yet to turn decidedly bullish. But there’s now hope.

Calm for Now—but the Trade War is not over yet

Last week’s surprise tariff escalation by Trump sent markets into a tailspin. Monday began on edge, though sentiment stabilized a bit as the day wore on. The calm has carried into today’s session, and we could see markets make a more significant recovery in the days ahead, if trade talks lead to trade deals.

China, showing no signs of yielding yet, struck back with sharp rhetoric after Trump floated an eye-watering 50% tariff on all Chinese imports. Beijing's message was blunt: “If the US insists on its own way, China will fight to the end.” With total tariffs now reaching 104%, Chinese goods entering the US are effectively twice as expensive, raising fears of a drawn-out trade war.

However, after Trump’s latest post, those concerns have been reduced somewhat. The lack of a more significant rally though suggests investors are yet fully committed to putting their money to work.

Before discussing the macro factors influencing the markets further, let’s now take a look at the chart of the DAX, which is looking very interesting.

Technical DAX forecast: Long-term trend line defended

Source: TradingView.com

From a purely technical point of view, the long-term DAX forecast has now turned some bullish again. The bulls may have just been given the greenlight after the big plunge on Monday was met with furious dip-buying near 18800-18900 long-term support. This area marks prior resistance-turn-support from last year. In addition, the long-term trend line that goes back to October 2022 low, comes into play here. The dip was bought and now the index finds itself back above the 200-day moving average and well above the psychological level of 20,000. At the time of writing, the index was residing inside prior resistance at 20260-20526 – with the upper end of this range marking the December 2024 high. A potential break back above this zone would tilt the technical DAX forecast back in the bulls’ favour. The next upside targets are shown on the chart.

Trump sends stocks higher

In a social post, this is what the US President said, causing a sharp risk-rally:

Germany’s Stimulus keeps long-term DAX forecast positive

Away from trade wars, it’s not all doom and gloom. If and when trade uncertainty lifts, the focus will return back to European stocks, which were recently buoyed by fiscal pledges, most notably Germany’s €500 billion stimulus package last month. That had given both the euro and equity indices a major lift. Let’s see if Europe will return to outperforming markets if trade uncertainty subsides. 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R