Dax Index News: Hawkish Fed vs. Dovish ECB – What’s Next for DAX Forecast?

DAX Advances on ECB Rate Cut Optimism

Euro area economic indicators supported market optimism toward ECB rate cut bets countering US tariff jitters.

On Tuesday, January 7, the DAX advanced by 0.62%, following Monday’s 1.56% rally to close at 20,341.

Financial and Tech Sector Deliver DAX Gains

Infineon Technologies and SAP posted gains of 2.04% and 1.69% amid hopes of a more dovish ECB rate path. Lower borrowing costs could boost company earnings and valuations.

The financial sector contributed to the positive Tuesday session. Munich Re and Hannover Re advanced by 1.61% and 1.36%, respectively.

Pharma equipment supplier Sartorius AG rallied 3.99% amid US reports of rising COVID cases and the first bird flu-related death.

Eurozone Data Supports ECB Rate Cut Bets

Euro area inflation figures for December supported expectations of multiple ECB rate cuts. The core inflation rate remained steady at 2.7%. The December numbers aligned with consensus, easing fears of rising inflation.

Additionally, the Eurozone’s unemployment rate stayed at 6.3% in November, aligning with forecasts. Markets anticipate a January ECB rate cut to support the Euro area economy, countering the effects of a more hawkish Fed rate path.

German Retail Sales and Factory Orders in Focus

On Wednesday, January 8, the German economy took center stage, with retail sales and factory orders in focus.

Retail sales declined by 0.6% month-on-month in November after falling 1.5% in October. Weaker consumer spending may dampen demand-driven inflation, supporting a more dovish ECB rate path.

Meanwhile, factory orders tumbled by 5.4% in November, following a 1.5% slide in October. November’s data underscored a weakening demand environment, pressuring the case for monetary policy support.

Later in the session, Eurozone consumer and economic sentiment figures also require consideration. The ECB will be mindful of a potential jump in consumer spending and demand-driven inflation. Improving consumer sentiment trends may signal higher consumption.

US Economic Indicators Weigh on Fed Rate Cut Bets

On January 7, the US ISM Services PMI and JOLTS Job Openings reports weighed on Fed rate cut bets.

The ISM Services PMI increased from 52.1 in November to 54.1 in December. Accounting for around 80% of the US economy, a pickup in economic activity could delay Fed rate cuts.

JOLTS Job Openings unexpectedly jumped to 8.098 million in November, up from 7.839 in October. The marked increase in job openings suggests a resilient US labor market, potentially boosting wage growth. Higher wages may fuel consumer spending and demand-driven inflation.

US Markets Slide on Fed Rate Cut Sentiment

US equity markets closed Tuesday’s session in negative territory as investors reacted to the US data. The Nasdaq Composite Index and the S&P 500 posted losses of 1.89% and 1.11%, respectively, while the Dow declined by 0.42%. Treasury yields climbed, reflecting increased bets on a hawkish Fed path.

Notably, the DAX briefly dipped in response to the data. However, bets on monetary policy divergence weighed on the EUR/USD pair, bolstering demand for German export stocks. A weaker EUR could give German companies a competitive edge overseas and increase non-EUR earnings.

US Labor Market in Focus

In Wednesday’s US session, ADP employment change and jobless claims will draw investor scrutiny. Upbeat US labor market data may further temper bets on an H1 2025 Fed rate cut, potentially pressuring German stocks. Conversely, weaker numbers may reignite bets on a March Fed rate cut, boosting demand for riskier assets.

The Fed rate path influences borrowing costs, potentially affecting company earnings.

However, investors should consider EUR/USD trends, with a weaker EUR potentially supporting German stocks

Near-Term Outlook

The DAX will depend on the US labor data and central bank commentary. Better-than-expected US labor market data and hawkish central bank chatter could drag the DAX below 20,000. However, softer US data may push the DAX toward its record high of 20,523.

Meanwhile, US tariff developments remain a key factor influencing market sentiment.

As of Wednesday morning, futures pointed to a mixed session. DAX futures were down 42 points, while the Nasdaq-mini futures gained 37 points.

DAX Technical Indicators

Daily Chart

Following Tuesday’s gains, the DAX remains comfortably above the 50-day and 200-day Exponential Moving Averages (EMAs), confirming bullish price trends.

If the DAX breaks out from 20,350, it could enable the bulls to target the record high of 20,523 next. A return to 20,523 may bring the 20,750 level into sight.

US labor market data, tariff developments, and central bank commentary will influence DAX trends.

Conversely, a DAX drop below 20,000 could indicate a fall toward the 50-day EMA and the 19,675 support level.

With the 14-day RSI at 62.13, the DAX may climb to 20,523 before entering overbought territory (RSI higher than 70).

Final Thoughts

The DAX is navigating global uncertainties, but a dovish ECB and weaker EUR could provide tailwinds for German exporters. Economic data, central bank decisions, and geopolitical factors will remain key drivers of market performance.

Read our detailed analysis of how global market dynamics influence the DAX’s performance here.