DAX Index Fundamental Analysis – week of July 24, 2017

We had been mentioning in several of our forecasts that the DAX index does not look to be working on strong foundations and despite some strong bounces over the last couple of weeks, it always looked as though the weakness was just beneath the surface. It looked as though the bears could take the time of their choosing to bring down the index whenever they wanted to and thats what happened last week.

DAX Looks Set to Weaken Further

It is indeed an irony that when the Eurozone is doing well in terms of economic data and Germany has largely followed suit, the indexes in the various stock markets have been falling. It is a phenomenon that seems to be unique to the European stock markets as the markets in the US and parts of Asia have been generally steady over the last week or so. The DAX fell from above 12600 to trade just above 12200 to close the week and it looks ready for some more losses in the coming week.

An understanding of the fundamentals and the changing dynamics of the market would help us understand why the European stock markets are falling. With the improving economic data from the Eurozone, the ECB is being pushed further and further towards considering tapering of the QE. This was further evident from the speech from Draghi last week when he tried to sound dovish but it was highly apparent that he was struggling to push down the euro when the data was clearly bullish. With the tapering, the ECB is likely to stop pushing in funds into the markets and this is likely to affect the buy side of the markets. Hence we are seeing large investors begin to pull out from the markets in anticipation of such a thing happening.

In the coming week, the region around 12200 is likely to serve as some strong support for the DAX index. This may lead to a small bounce and with the absence of any economic data next week, we should see a lot of consolidation in the index in the coming week.