German 30 (DAX 30) Price Surge: Bullish Trends Amid ECB and Fed Rate Cut Prospects
The DAX index, Germany's benchmark stock market index, has continued its upward trend and is still displaying bullish performance
The DAX index, Germany’s benchmark stock market index, has continued its upward trend and is still displaying bullish performance around 18,329.5, having hit an intraday high of 18,333.0.
The primary driver behind this upward movement is the weaker-than-expected April U.S. jobs report released last Friday.
The disappointing job data, combined with separate figures showing an unexpected contraction in U.S. service sector activity for April, has strengthened the case for interest rate cuts by the third quarter. Investors typically view rate cuts positively because they can boost economic growth by reducing borrowing costs, thereby encouraging spending and investment.
Besides this, the statements from European Central Bank Chief Economist Philip Lane have contributed to market optimism. Lane’s remarks, suggesting that inflation is returning to target in a timely manner, have fueled speculation about a potential rate cut by the ECB in June. Such a move could further stimulate economic activity and support stock market performance.
Impact of Slower U.S. Job Growth on Federal Reserve Policy and the DAX Index
On the US front, the recent release of the April U.S. Nonfarm Payrolls report revealed a significant slowdown in job creation, with only 175,000 jobs added compared to the expected 243,000. This disappointing data, alongside lower-than-anticipated growth in Average Hourly Earnings, has prompted expectations of interest rate cuts by the Federal Reserve.
Market sentiment has shifted, with investors now foreseeing the possibility of rate cuts as early as September, rather than November as previously anticipated. However, the CME FedWatch Tool indicates a growing likelihood of a 25 basis points rate cut in September, reflecting the market’s response to the subdued job market performance.
Therefore, the prospect of rate cuts by the Federal Reserve has exerted downward pressure on the U.S. dollar, contributing to the positive performance of the DAX index. A weaker dollar can benefit multinational companies listed on the DAX by boosting their competitiveness in international markets and increasing the value of their foreign earnings when converted back into euros.
ECB Policy Decisions and Their Impact on the DAX Index
Looking ahead, the European Central Bank (ECB) faces decisions regarding the normalization of its policies, which could impact the direction of the DAX index. While there are indications of economic recovery in the Eurozone, including stronger-than-expected growth in the first quarter, disagreements among ECB policymakers regarding further rate cuts persist.
Some ECB officials advocate for extending rate cuts beyond June to support inflation and economic recovery. However, others argue for a more cautious approach, citing the need to assess the effectiveness of current measures and avoid potential negative consequences of prolonged monetary stimulus.
Therefore, the DAX index’s future performance may be influenced by the ECB’s policy decisions, with rate cut extensions possibly boosting the market, while a cautious approach could lead to increased uncertainty among investors.
German 30 (DAX 30) Price Forecast: Technical Outlook
In the latest market update, the DAX Index showcases a bullish momentum with its pivot point situated at €18,235.18. As of now, the index has surpassed this pivotal level, signaling potential upward movement. The immediate resistance is mapped at €18,459.49, followed by higher resistance levels at €18,695.69 and €18,717.66. These marks serve as crucial hurdles that could cap gains if the index continues its ascent.
Conversely, support levels are established below the pivot, with the nearest at €18,000.56, which could provide a safety net against price declines. Further support is seen at €17,996.12 and €17,936.69, important if the index retracts.
The technical setup is reinforced by a bullish “Three White Soldiers” pattern on the 4-hour chart, indicating a strong upward trend. Additionally, the Fibonacci extension levels highlight potential targets and reversal zones, with the current price testing the 1.618 extension. The Relative Strength Index (RSI) at 72.80 suggests the market is approaching overbought conditions, which could lead to volatility or a pullback.
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