DAX forecast: Bulls tighten grip despite macro concerns

• DAX forecast leans bullish from a technical point of view with price action pointing to further upside
• Key resistance around 24,500-24,650 has broken, potentially paving the way for 25,000
• Weak German data only helps to underscore need for fiscal stimulus

 

While the euro continues to feel the weight of weak German data and lingering political instability in France, the European equity markets have continued to push higher with some indices in the region hitting new record highs this week. Understandably, the French CAC index has underperformed, but top share indices in Spain, Germany and the UK have all broken to new highs. The German DAX forecast therefore continues to look constructive from a technical standpoint, and soon we could be talking about the 25K level.

 

DAX broke to new highs this week, so can the rally continue?

 

The German benchmark index has been showing remarkable resilience in the last couple of weeks despite a string of disappointing economic readings. At the start of the week, we saw a bit of a pullback. But that was shallow, suggesting that the market’s bias remained firmly to the upside. Lo and behold, by Wednesday we saw a clean breakout, which continued into Thursday’s session when the index hit a new all-time high at 24,773. But from mid-day Thursday, we have since seen the index ease lower along with other global indices. Still, the DAX forecast leans bullish, and I wouldn’t be surprised if today’s dip is bought later in the day or early next week. After all, the stock markets have consistently been willing to look past weak German data in favour of stimulus support.

 

 

Index gearing up for a potential rally to 25K

 

The DAX’s behaviour over the past several months was a textbook example of healthy consolidation within an uptrend. Last week’s sharp rally broke the market out of a multi-month range, but rather than reversing, the index paused just beneath its July peak near 24,650, forming a tight consolidation band there earlier this week, before pushing through.

 

This sort of price action often acts as a launchpad for the next leg higher. That is something I am continuing to expect despite the cool-off in the last 24 hours or so.

 

For as long as we see a daily close above 24,500, this should keep the bullish bias intact. If so, this would be a clear technical trigger for a continuation move towards 25,000, with a possible extension much higher, towards 25,800–26,200 — a measured move objective derived from the height of the prior consolidation range.

 

But should we see a slightly deeper pullback, then it is essential that the next support area around the 24,300 zone holds. This remains the most important area of interest on the downside, given that it was here that the index last made a low prior to breaking to a new all-time high this week.

 

Therefore, should the market slip beneath 24,300, then we could see a run on stops of the weaker hands, potentially triggering a sharp correction towards the next key area between 23,950 and 24,000.

 

From a trend perspective, the DAX remains comfortably above its 21-day exponential and 200-day simple moving averages, both of which are now sloping upwards.

 

 

Key takeaway points for the DAX forecast

 

• Despite the uneasy macro backdrop — weak German industrial output and political uncertainty in France and the US — price behaviour suggests that sentiment among equity traders is still positive
• DAX’s ability to absorb bad news without breaking lower is telling
• If the DAX can maintain its footing above current levels, momentum could easily build again and push the index towards that 25,000 milestone next, and potentially beyond

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R