DAX Index Daily Fundamental Forecast – January 2, 2018

The DAX index closed the year on the backfoot as political uncertainty continued to weigh on the markets in Germany. The index closed below the 12900 region for the last trading day last week and this is a bearish signal for the days to come. After having consolidated and ranged for most of the last 2 weeks on the back of low liquidity, it is indeed a surprise and an ominous signal that the index sought to brak through the lows of the range of the last trading day of the year.

DAX Ends 2017 Lower

It just goes to show that the bears continue to be in control of the markets as the index continues to be under pressure due to the political developments in Germany. Even though Merkel managed to win a majority in the elections that were held in Germany quite some time ago, she has still been unable to form a government and as more and more days pass, it only gets more difficult for her to form the coalition. From a stage when it appeared that the formation of the coalition would only be a formality, it is now a stage when her survival seems doubtful.

The more days it takes to form the coalition, the more is the pressure on her to give up and call for new elections. These new elections are likely to throw up even more confusion and uncertainty in the political and economic circles and this is probably the last thing that Germany would want. This is the reason why Merkel has been given more and more time to get her act in place but so far, she has been unable to do so.

This has only added on to the pressure on the DAX and after appearing to be positive, the cracks are beginning to appear in the markets and this would only play into the hands of the bears. It would be interesting to see how the markets open up today after the long weekend and it is likely that traders return back to their desks after the holidays and this should lead to an increase in liquidity which could end up supporting the DAX for the short term.