The German DAX index is facing a challenging start to the new year, weighed down by persistent trade uncertainties, weak demand from China, and signs of strain in the Euro Area labor market. Despite these headwinds, technical indicators remain bullish, with the index still trading above its 50-day and 200-day EMAs.
Key Market Drivers
- German Autos and Tech Under Pressure
- Autos: Concerns over U.S. tariffs targeting German automakers and a slowdown in Chinese demand hit auto stocks hard. BMW, Mercedes-Benz, and Porsche all posted losses.
- Tech: Tech stocks mirrored the decline, with SAP and Infineon Technologies reporting notable losses.
- Labor Market Concerns
- German unemployment increased by 10k in December, following a similar rise in November, leaving the unemployment rate at 6.1%.
- A weakening labor market is fueling expectations of multiple ECB rate cuts, which could support exporters by weakening the euro but pose challenges for rate-sensitive industries.
- PMI Data and ECB Outlook
- Germany’s Services PMI edged up to 51.0 in December, signaling possible stabilization but still hovering near contractionary territory.
- Better-than-expected revisions could temper expectations for aggressive ECB easing, keeping borrowing costs elevated.
- US Economic Data Impact
- The U.S. ISM Manufacturing PMI showed steady improvement, signaling a potential stabilization in the manufacturing sector.
- The Services PMI, expected to rise to 58.5, could either dampen or support rate-cut expectations depending on the final figures.
- Tariff Developments
- U.S. trade policy remains a significant wildcard, particularly for export-heavy sectors like autos and machinery.
Technical Analysis – DAX Daily Chart
- Current Position: The DAX closed Friday at 19,907, down 0.59% but still above its 50-day and 200-day EMAs, confirming bullish sentiment.
- Resistance Levels:
- Immediate resistance at 20,000.
- Key breakout target at 20,350, with a potential to challenge the record high of 20,523 if bullish momentum strengthens.
- Support Levels:
- Immediate support at 19,750.
- Stronger support at 19,675, with buying pressure expected near the 50-day EMA.
- Momentum Indicators:
- The 14-day RSI is at 49.64, signaling neutral momentum. A drop below 19,675 could push the RSI closer to oversold territory.
Near-Term Outlook
- Upside Potential:
- Better-than-expected Services PMI data and easing tariff fears could drive the DAX toward 20,350 and beyond.
- Hawkish ECB commentary could weigh on sentiment but support exporters by weakening the euro.
- Downside Risks:
- Weak economic data or escalating trade tensions could trigger a correction toward the 19,675 support level.
- A break below 19,675 would target the 50-day EMA and increase bearish sentiment.
Conclusion
The DAX remains in a precarious position as it balances positive technical signals with economic uncertainties. Market participants should watch for developments in German and U.S. Services PMI data, ECB commentary, and U.S. tariff announcements. These factors will likely dictate the index’s trajectory in the near term. While risks remain elevated, the potential for stabilization and growth opportunities could attract buyers at key support levels.
