DAX Index Forecast: Monday’s Prospects Tied to ECB Rate Cut Predictions

Overview of the DAX Performance on Friday

The DAX rose by 0.42% on Friday. Following a 0.60% gain on Thursday, the DAX ended the session at 17,117. Significantly, the DAX climbed to a new all-time high of 17,199.

German Wholesale Prices Raise Bets on an April ECB Rate Cut

On Friday, German wholesale prices supported market bets on an April ECB rate cut. Wholesale prices declined by 2.7% year-over-year in January after being down 2.6% in December.

ECB commentary contributed to the gain. Bank of France Governor Francois Villeroy de Galhau supported the bets on an April rate cut warning the ECB should not wait too long to cut rates.

The upswing in bets on an April rate cut came despite ECB President Lagarde, among others, warning against cutting rates too early.

US Producer Prices Reduced Bets on Fed Rate Cuts

On Friday, leading US inflation indicators contrasted with the numbers from Germany. Hotter-than-expected US producer prices for January impacted buyer demand for riskier assets.

Producer prices increased by 0.3% in January, with core producer prices up 0.5%. Following the US CPI Report, the numbers justified warnings from FOMC members about cutting rates too early.

The upswing in producer prices aligned with an unexpected increase in the Michigan Inflation Expectations Index. The Index rose from 2.9% to 3.0%. Economists expected the Index to slip to 2.8%.

Market reaction to the inflation data was evident across the US Treasury and equity markets. 10-year US Treasury yields increased by 1.11% to 4.283%. On Friday, the Nasdaq Composite ended the session down 0.82%. The Dow and S&P 500 declined by 0.37% and 0.48%, respectively.

The Friday Market Movers

Rising bets on an April ECB rate cut drove demand for rate-sensitive stocks.

Infineon Technologies (+0.36%), SAP (+0.43%), and Siemens AG (+1.33%) ended the Friday session in positive territory.

Auto sectors also enjoyed a positive end to the week. Porsche and BMW led the way, gaining 1.50% and 1.44%, respectively. Mercedes-Benz Group and Volkswagen rose by 0.79% and 0.40%, respectively.

Investor sentiment toward the ECB rate path impacted bank stocks.

Commerzbank slid by 2.17%, with Deutsche Bank ending the session down 0.25%. A more dovish ECB rate path could affect bank net interest margins (NIM) and shareholder returns.

The Buba Monthly Report and the ECB in Focus

On Monday, investors must track ECB commentary. Increasing support for an April ECB rate cut could drive buyer demand for DAX-listed stocks.

Moreover, investors must consider corporate earnings and the German Buba Monthly Report and press conference. Views on the economic outlook, inflation, and ECB monetary policy could influence investor appetite for DAX-listed stocks.

There are no economic data from Germany to consider on Monday. However, it is another pivotal week for the DAX, with private sector PMIs and Q4 GDP numbers out later in the week.

FOMC Member Speakers Under the Spotlight

Later in the Monday session, investors must consider FOMC member speeches. Calls to delay Fed interest rate cuts to H2 2024 could impact riskier assets.

However, there is no economic data to consider. The US markets are closed in recognition of George Washington’s birthday.

Short-term Forecast

Near-term trends for the DAX will hinge on central bank commentary, central bank meeting minutes, and the private sector PMIs. Rising bets on an April ECB rate cut are pivotal to the DAX trajectory.

On Monday, the DAX futures were down 50 points while the Nasdaq mini was up 32 points.

DAX Technical Indicators

Daily Chart

The DAX remained well above the 50-day and 200-day EMAs, affirming bullish price signals.

A DAX return to the 17,100 handle would support a breakout from the Friday all-time high of 17,199 to target the 17,250 handle.

On Monday, central bank commentary and China will be likely focal points.

However, a break below the 17,100 handle would support a fall to sub-17,000 levels.

The 14-day RSI at 62.53 indicates a DAX break above 17,200 before entering overbought territory.

4-Hourly Chart

The DAX hovered above the 50-day and 200-day EMAs, reaffirming the bullish price signals.

A DAX break above the all-time high of 17,199 would support a move to the 17,250 handle into play.

However, a drop below the 17,100 handle would bring the 50-day EMA into play.

The 14-period 4-hour RSI at 61.32 suggests a break above the 17,200 handle before entering overbought territory.