The DAX is facing a lot of pressures at the moment, with rates in both Germany and the US rising – risk appetite is suppressed.
Beyond that, energy continues to be a major concern for the German manufacturing sector.
During trading on Thursday, we've seen the DAX drop pretty significantly, although there was a little bit of a bounce late in the day. It's facing a perfect storm of stagflationary pressures as geopolitical tensions and escalation in the Middle East have pushed Brent crude back around the $100 per barrel level, directly threatening Germany's energy intensive industrial core such as Siemens Energy and others.
Simultaneously the European Central Bank hawkish pivot recently, which of course is driven by rising inflation expectations and a surge in yields is squeezing equity valuations with markets now pricing in the potential for an April rate hike despite the sluggish 0.9% GDP growth projections for this year.
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The 23,000-euro level above is significant resistance and if we can break above there it would be a very bullish sign. That being said I think DAX continues to struggle with momentum as it would make a certain amount of sense that we continue to see more risk aversion out there when it comes to trading.
The euro of course has its influence as well. It's been struggling as of late, but it is still stubborn. So, the idea of cheap German exports and higher energy and other input prices will of course continue to weigh upon this market.
For what it is worth we have recently broken down over the last couple of weeks kicking off a death cross where the 50-day EMA breaks down below the 200-day EMA which of course is a longer-term bearish signal. Whether or not we break down significantly is something that will reveal itself fairly soon with the way the bond markets are behaving. Caution is the best course forward here.
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