The DAX index continues to consolidate and trade in a tight range for most of the day yesterday and as we have been mentioning in our forecasts, it is clear that the stock markets around the world are in a state of consolidation and this is the kind of ranging and price action that is normally associated with such kind of a market. This is likely to continue for the short term.
DAX Likely to Come Under Pressure
But as time goes on, we believe that the stock markets would come under pressure in the medium term as there would be some fundamentals that would be working against the DAX. The 2 important events that are likely to dominate the index over the coming days are the politics in Germany and the interpretation of the minutes from the ECB meeting that was released yesterday. The ECB meeting talked about the improving economy across the Eurozone and this has been augmented by the strong incoming data from the Eurozone in general and also from Germany in particular.
While the improving economic scenario is something that should cheer the DAX, what it means is that the improvements are likely to ensure that the ECB begins to tone down the QE. The hawkish minutes has led to the belief that the ECB could be stopping the QE by the end of the year and could also be hiking the depo rates in due course of time. This stoppage of QE is likely to be bearish for the DAX in the medium term as it would mean stopping of the inflow of funds into the stock markets.
Looking ahead to the rest of the day, we do not have any major news from Germany or the Eurozone and hence it is likely to be another day of consolidation in the index but with a bearish tinge due to the hawkish ECB minutes.
This article was originally posted on FX Empire
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