DAX Index Fundamental Analysis – week of January 29, 2018

The DAX index had a middling sort of week as it did not know which direction it had to take, something that was common to many of the European stock markets last week. They were pushed and pulled by the fundamentals, the ECB and the politics and finally ended the week in the middle of their range and moving nowhere anytime soon.

DAX Still in Consolidation

The week began strongly for the DAX and for a brief while, it appeared as though the index would break through the strong resistance region near 13500 and move higher as well. But it was clear that the traders were waiting to see what the ECB and Draghi were going to say in their press conference before they started pushing the index in a specific direction. But when the press meet did come along, it did not add much to what the market did not know already.

It was expected the Draghi would sound dovish in his meet as a means of talking down the euro which had been rocketing higher for quite sometime but none of this happened during his meet. It was difficult for him to say anything to the contrary when the data is overwhelmingly in favor of ending the QE by the end of this year. This led to the euro shooting up and the DAX correcting downwards. The only thing that saved the index from breaking through the lows of the range is the progress being made in the coalition talks in Germany which could lead to a deal in less than a week from now.

Looking ahead to the coming week, there is not much data from Germany or the Eurozone and the next week is likely to see the dollar being the main focus. For the DAX, the focus would be on the coalition talks and if things go according to plan, then we should have a deal by the end of the week. If that happens, we should see some relief rally in the DAX which is likely to carry it back towards the highs of its range. We doubt whether this would be enough for the index to break through the range and if that does not happen, expect some more ranging and consolidation in the days to come.