Dax underperforms as German business morale declines

German IFO business sentiment declined in August for the second straight. PMI data earlier in the week also surprised to the downside. The German economic recovery appears to be losing momentum. Can the Dax still break higher?

Germany

Dax underperforms on German business woes 

Recent data from Germany is pointing to rising concerns over the outlook and the economic rebound losing momentum.  

The latest German IFO index declined for a second straight month in August and by more than forecast to August to 99.4. This was below the 100.4 level forecast and down from 100.8 in July. Whilst the current assessment actually improved, IFO expectations saw the largest drop since the pandemic started. 

The data comes following softer than expected German manufacturing PMIs at the start of the week. Whilst both the German manufacturing and service sector expanded in August, the manufacturing PMI was the notable decline dropping to a 7 month low of 62.7 in August, down from 65.9 in July. Activity in the service sector slowed less ticking lower to 61.5, down from 61.8.  

So, what does this all mean? 

The figures suggests that the German economic recovery from the pandemic is starting to slow. Whilst the IFO numbers bode well for growth this quarter, the outlook for the coming quarter is weaker. The loss of momentum appears to be owing to rising concerns over the delta variant, and supply chain issues amid the ongoing global chip shortage. However recent floods in Germany and the uncertain political outlook could be adding to the deteriorating picture

Looking ahead any gains in the Dax could be capped by political uncertainty as attention shifts to the first German elections in 15 years without Chancellor Angela Merkel. The latest polls show that the SPD have overtaken Merkel’s CDU party for the first time in a decade and a half. 

Where next for the Dax?  

The Dax’s rebound from the 50 sma has started to stall shy of 16000 for now. The index has been grinding higher across the year with the bullish trend intact, so it makes sense that we could see another test of 16000 soon. A break above this level would be a bullish signal and could boost the price to fresh all time highs. However, it is worth pointing out the bearish divergence on the RSI which suggests that momentum is slowing. 

On the downside side, the 50 sma has acted as a strong support across the year. A close below the 50 sma at 15675 would be significant and could open the door to 15000 the July low before sellers look towards the 200 sma at 14700. 



How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

  1. Open a Forex.com account, or log-in if you’re already a customer.
  2. Search for the market you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.


More from DAX

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.