Germany’s DAX40 Hits All-Time Highs: What’s Next?
Germany’s DAX40 has surged to new record levels above 18900 after a recent sell-off in equities. Investors who were waiting for a pullback have taken this opportunity to enter the market.
From a technical standpoint, the August decline was a corrective pullback. The DAX40 dropped to its 200-day moving average during this pullback and found support around this level. At its lowest point, the benchmark index even dipped below the 61.8% Fibonacci retracement level from the October 2023 lows to the May 2024 highs.
With a successful breakout to new highs, the next potential target for the DAX40 is around 19500, which is the 161.8% level from the October 2022 low to the July 2023 high. A correction to 61.8% of the advance could follow before the rally continues.
Based on the targets from the current correction, there is a potential upside of 13% to reach 21500, which could be achievable in the coming quarters.
The Driving Forces Behind the Surge
The recent outperformance of the German equity index is accompanied by a strengthening Euro (+3% against the US Dollar since the start of the month) and a weak economy. Market bulls might be taking advantage of the weak economy as a reason to anticipate looser monetary policy and buy into the market.
However, this strategy carries some macroeconomic risks, as Germany may not be able to rely on external demand or domestic stimulus in the current growth cycle. The key drivers going forward are expected to be a relaxation of monetary policy, which would make equity market returns more appealing, a rebound in lending, and a normalization of interest rates.
While monetary policy is crucial, the macroeconomy remains a focal point in the long run.
The FxPro Analyst Team
Analysis:
The DAX40 has reached new all-time highs, driven by a recent sell-off in equities that attracted investors looking for an opportunity to enter the market. From a technical perspective, the August decline was seen as a corrective pullback, with the index finding support near its 200-day moving average. The potential target for the DAX40 is around 19500, with a possible upside of 13% to reach 21500 in the coming quarters.
The surge in the German equity index is supported by a stronger Euro and a weak economy. Market bulls are banking on looser monetary policy to drive the market higher, although this strategy carries macroeconomic risks. Going forward, the key drivers are expected to be a relaxation of monetary policy, a recovery in lending, and a normalization of interest rates.
Overall, the current market conditions suggest a positive outlook for the DAX40, but investors should remain cautious and monitor macroeconomic developments closely to make informed investment decisions.