Highlights of the article of DAX :
- DAX is falling as traders now expect the rate to rise by 75 basis points from the Fed
- In the short term, DAX may reduce its support to 13,380 points
DAX is falling as traders now expect the rate to rise by 75 basis points from the Fed
The German stock market has fallen in recent days along with its international counterparts. Stock markets are suffering from bond yields due to higher-than-expected inflation. Bond yields in Europe and the United States have accelerated sharply in recent days amid sober comments from US officials on inflation and the unexpected acceleration of the US CPI to its highest level since 1982 at 8.6%.
Thus, stock markets are under pressure, as are bond markets, as operators revise their forecasts for raising central bank rates to fight inflation. The probability of raising the Fed rate by 75 basis points on Wednesday, which will be the first since 1994, jumped from 3% to 23% after the May inflation data and now stands at 95% after the publication of the Wall Street Journal. an article indicating that such a significant rate increase was considered by the FOMC.
Faced with sustained inflation and unofficial pressure on the Fed, the FOMC should not remain “as expected” as it has been in recent quarters, and should therefore raise its rate by 75 basis points tomorrow night. While markets expect this to rise, the market is likely to react negatively, given that the rate hike will be accompanied by extreme hawk rhetoric from the Fed when Joe Biden recently ordered Jerome Powell to slow the rate hike.
In the short term, DAX may reduce its support to 13,380 points
Chart daily price DAX 40 executed on TradingView:
In this context, it is advisable to be cautious about buying and do so only after important sales, when investor panic reaches a maximum, and try to sell after the rebound.
DAX is currently down 8% in just one week, and DAX is back to test the first significant support at around 13,380 points, the May low. The sell-off is important, but the 14-session RSI is still not in the oversold zone. So it’s possible that DAX is dropping its support before jumping lower.
Note also that the DAX has just emerged from the bottom of a symmetrical triangle in which it has been oscillating for almost three months, paving the way for a decline to the March low of 12,438 points.
If the decline continues below 13,380 points, it is better to wait for the RSI to fall below 30 and the price to stabilize to try buying strategies. The oversold RSI does not guarantee an immediate market rebound, but it is better to take the opposite position when the mood is so depressed.
In the case of a rebound at current levels or below, it will be advisable to wait at least a return above the 50-session moving average before taking the bearish forward again. Indeed, the difference between the moving averages of 50 and 200 sessions is usually an interesting price zone for finding profits during the “bear market”.
DAX and its counterparts are likely to continue to record lows in the coming months, given the growing risk of recession in the United States. Leading figures are deteriorating, such as ECRI, which fell into decline this month.