DAX outlook EU stocks ease as tariff deadline looms but upside path intact

European markets fell in the first half of Friday’s session, with some indices turning red on the week. However, it is far too early to suggest markets have topped and dip buyers are lurking. With US cash markets closed for trading today, futures have drifted lower along with a slightly negative tone in European markets. As well as futures, the US dollar also gave back at least a good chunk of those NFP-driven gains from yesterday.  It looks like investors are now turning their attention to potential tariff-related volatility once more and are not in a mood to take on excessive risk. While it is not full-on risk off, traders seem happy to book profit ahead of the weekend. Some profit-taking alone is probably not enough to turn the DAX outlook negative. There has to be a major escalation in the trade war again for stocks to drop like they did in April.

Tariffs will be focal point for markets next week

Next week, the macro calendar is fairly light with no major US releases scheduled. While there are a couple rate decisions from the Reserve Banks of Australia and New Zealand, these are unlikely to be super important for the global markets. Instead, it will be the July 9 deadline, when the so-called ‘Liberation Day’ tariffs are set to return, that will be the centre of market attention.

Ahead of July 9 deadline, Trump has said letters are being sent to trading partners in the coming days, outlining their new tariff rates. While we are unlikely to see a repeat of volatility like we did in early April, when markets were at the peak of tariff-related turbulence, we could potentially see some selling pressure if we see the return of tit-for-tat trade tariffs.

Overall, I don’t expect the current trade negotiations to be fully wrapped up by the July 9 deadline, so further extensions seem likely. Canada, for example, has already secured an extension until July 21 by agreeing to drop its digital tax, meeting U.S. demands. As for China, the official deadline remains August 12, though it’s unclear whether the recent framework trade deal with the U.S. has rendered that date obsolete. Under the new agreement, China will resume exports of rare earth minerals in return for the removal of certain countermeasures. However, no detailed terms or official documentation have been released yet. It’s also worth remembering that the effective U.S. tariff rate on Chinese imports remains steep—still at 55%.

DAX outlook: Technical levels and factors to watch

Out of the major European indices, the DAX has been the strongest, having achieved a new all-time high in June, while some of the continents’ other major indices failed to break to the highs hit earlier in the year. Against this backdrop, the DAX outlook is bullish from a technical standpoint and makes sense to look for dip-buying opportunities on the German stock index.

 

 

The underlying trend is still bullish, even if momentum has been lost somewhat in recent weeks. After hitting a record high at 24490 in early June, the DAX has printed a couple of lower highs and shown some two-way price action.

Yet, the dips have been shallow, suggesting the path of least resistance remains to the upside, especially with the index still holding comfortably above its 200-day average and also its short-term 21-day as well. The latter comes in around the 23730 support area, making this a key level to watch in the next few days. Below here, the old all time high hit in March at 23480 comes into focus next, then the June low at 23,019. In terms of resistance, 24180 is a key level to watch. If we go above it, then the all-time high at 24490 will then be in sight.

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R