After the breakthrough of the major resistance at 16,400, DAX surged and approached the 19,000 mark. During this uptrend, expectations for rate cuts from the ECB dropped from 7 to 3 times for 2024. Tensions escalated in the Middle East, with Iran launching missiles towards Israel. Even as inflation continued to decline, inflation expectations in the bond market saw an increase. The reduced risks of rate cuts, coupled with geopolitical tensions, are beginning to weigh on the DAX index. Consequently, the trend that began in October is now in jeopardy.
(E-Mini DAX Daily Chart)
Closes below the blue trendline, which is currently at 18,130, will be negative, but the real support will be at 17,850. At this mark, the 50-day moving average and Fibonacci 23.6% retracement level converge. Additionally, at this same level, there was resistance at the beginning of March that fueled the final upside move after its breach.
Should 17,850 be breached to the downside, the correction may extend to as low as 17,100. However, if the 50-day moving average holds, DAX bears should proceed cautiously, as a break in the trend signal could potentially be a trap.
