DAX Steadies Despite Gloomy Trade Deal Analysis
Economists sliced and diced the US-EU trade agreement overnight, suggesting a challenging economic outlook. Despite the potential tariff-induced headwinds, the 15% tariff was significantly lower than Trump’s threat of a 30% levy. The DAX advanced 0.60% to 24,115 in early trading on Tuesday, July 29, partially reversing Monday’s 1.02% slide.
Christopher Barraud, CEO at Market Securities Monaco SAM, commented on the potential impact of Sunday’s trade deal on Germany and the EU’s economy, stating:
“Industry officials in Germany warned that the deal leaves the auto industry exposed and will make companies in Europe less competitive, with Wolfgang Niedermark calling the agreement ‘an inadequate compromise’ that ‘sends a disastrous signal’ to the economies on both sides of the Atlantic.”
However, Daniel Kral, a Europe macro specialist, gave a different perspective, underscoring the importance of a trade agreement:
“Those disappointed in the EU rolling over for Trump (1) overestimate the EU’s leverage (2) underestimate the extent of EU’s dependence on US (trade, energy, tech, security) (3) misjudge pain thresholds for EU politicians (4) ignore broader context & realistic options given.”
Sector Performance: Tech Stocks Shine
Tech stocks posted early gains on July 29 as investors reacted to the trade headlines. Infineon Technologies and SAP rallied 1.96% and 0.71%, respectively.
Auto shares steadied after Monday’s sell-off. BMW climbed 0.74%, with Mercedes-Benz Group and Porsche also posting early gains..
Wall Street Mixed Ahead of the Fed and Key US Economic Data
US markets posted mixed performances on Monday, July 28, as investors reacted to the US-EU trade agreement. The Dow slipped 0.14%, while the Nasdaq Composite Index and the S&P 500 advanced 0.33% and 0.02%, respectively, closing at record highs.
Despite the trade deal, investor caution tempered demand for risk assets. US labor market and inflation data, and the Fed’s interest rate decision and press conference loomed, fueling uncertainty.
DAX Price Forecast
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See all DAX forecastsUS Labor Market and Consumer Sentiment in Focus
Later in the Tuesday session, US consumer confidence and labor market data will likely influence risk sentiment.
Economists forecast the CB Consumer Confidence Index to rise from 93 in June to 95.8 in July. A higher Consumer Confidence Index reading could signal a pickup in consumer spending. Rising spending could ease US recession fears, given that private consumption accounts for over 60% of the US GDP. Conversely, a lower print may revive concerns about the economic outlook, weighing on sentiment.
Economists expect JOLTs Job Openings to fall from 7.769 million in May to 7.55 million in June. A larger-than-expected fall may indicate a weakening US labor market, potentially curbing wage growth. Slower wage growth could impact consumer spending and the US economy. However, higher job openings may lift sentiment toward the US economy, potentially bolstering demand for risk assets such as the DAX.
While upbeat figures could ease recession fears, they may also signal a less dovish Fed rate path. With the Fed interest rate decision looming, fading bets on a September Fed rate cut could limit the effect of upbeat data on risk assets.
Near-Term Outlook
The DAX’s near-term outlook depends on US economic data and central bank policy guidance.
- Bearish Scenario: Weaker US data or hawkish central bank rhetoric may push the DAX toward 23,500.
- Bullish Scenario: Strong US data and dovish central bank signals could drive the DAX toward 24,150, bringing the July record high of 24,639 into sight.
DAX Technical Indicators
Daily Chart
Despite Monday’s sell-off, the DAX remains above the 50-day and 200-day Exponential Moving Averages (EMA). The EMAs indicate a bullish bias.
A breakout above 24,150 could enable the bulls to target 24,350. A sustained move above 24,350 may pave the way to the record high of 24,639.
On the downside, a break below the 50-day EMA could expose the crucial 23,500 support level.
The 14-day Relative Strength Index (RSI), at 51.55, indicates the DAX could climb to 24,639 before entering overbought territory (RSI > 70).
Final Thoughts
Overall, the DAX sits at a crucial juncture, with US-EU trade-related chatter, key economic data, and central bank policy guidance likely to determine the next move.
Traders should monitor both technical and fundamental drivers and consult our economic calendar.
