The DAX index had a subdued week that has just gone by and it was a week which started with a lot of hope which helped to push the index higher during the initial half of the week but ended lower due to some pressure exerted by the fundamentals. It is a bit choppy at the moment with the short term looking good but the medium term looking bleak and this has been confusing the traders and that is reflected in the price action.
The fact that the DAX is under pressure to close the week despite the good news from the political circles which report that the German leader Merkel has been able to push through with a deal for a coalition, should show how the traders are viewing the index at the moment. With the deal going through, she has been able to avoid the possibility of any immediate election, a possibility which is not liked by the leaders and many people in Germany as well but that has failed to lift the index so far.
The reason for this is the hawkish minutes from the ECB which indicated that they would slowly shift their stance which is an indication that they are looking towards the tapering of the QE and finally cancelling it altogether. Though this has been indicated earlier, this is the first time that the ECB members have said this explicitly and this hawkish minutes helped to boost the euro to very high levels. But what this also means is the fact that there would not be funds available for the stock markets once the QE is done with and this has put pressure on the buying side of the DAX index.
Looking ahead to the coming week, we do not have any major news from the Eurozone or Germany and so we can expect this pressure to begin to show through on the index. We might see a temporary rally due to the political deal that is being worked out but that should be short lived and it is likely to be sold into. This would push the DAX back down again and hence expect some choppy trading in the coming week.
This article was originally posted on FX Empire
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