The GER 40 Index Futures (EUREX: FDAX) are facing a perfect storm of negative factors, leading to a decline for the third consecutive week. The primary driver is the escalation of geopolitical tensions in the Middle East, with the recent strike between Iran and Israel causing risk aversion among investors. This has led to a flight to safety, pushing the DAX lower.
Adding to the woes is the Federal Reserve’s hawkish stance on interest rates. Stronger-than-expected US retail sales data has dampened expectations of significant rate cuts, potentially keeping the US dollar strong. A robust dollar weakens the Euro, making European exports less competitive and exerting further downward pressure on the DAX.
Furthermore, mixed economic data from China, a significant trading partner for Germany, raises concerns about the global economic recovery, further dampening investor sentiment.
Technical Analysis
The DAX futures are currently trading at 18,010, within a well-defined descending channel on the 4-hour chart. This technical indicator suggests a strong bearish trend. The price action trades below all key moving averages [20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line)], with the 20-SMA recently falling below the 50-SMA and 100-SMA in a bearish crossover.
A sustained push below the 38.20% Fibonacci retracement level would leave short-term trading opportunities towards the 50.00% Fibonacci retracement level (17,843). A break below initial support would leave the 61.80% Fibonacci retracement level (17,608) and 78.60% Fibonacci retracement level (17,273) as the next levels of significance lower.
A break above the 38.20% Fibonacci retracement level could offer a short-term counter-trend opportunity towards the 23.60% Fibonacci retracement level (18,369). A break above the initial resistance could confirm the bullish momentum, likely bringing the 18,577 price level and the major resistance level of 18,839 into play.
Summary
The DAX is under significant pressure due to a confluence of negative factors. The technical analysis reinforces the bearish trend, with a potential downside target at the 50.00% Fibonacci retracement level. A recovery above the 38.20% Fibonacci retracement level is needed for a short-term bullish swing, but a confirmed trend reversal would require a break above the descending channel and the 18,839 resistance level.
Sources: TradingView, Trading Economics, Reuters, Investing.com.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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