The DAX index has moved sideways in the past few months as the momentum that started earlier this year faded. The index, which tracks the biggest publicly listed German companies, was trading at €15,738, a few points below the year-to-date high of €16,521.

Freepik

European economic weakness

The DAX and other European indices like the CAC 40 and FTSE MIB have come under pressure recently as investors remain concerned about the region’s economy. 

Economic numbers published on Thursday showed how bad the European economy is doing. In Germany, data showed that industrial production slipped by 0.8% in July mostly because of a steep decline in carmaking. It was the third straight month of declines.

The report means that the economy will likely contract again in the third quarter. It has entered in a steep recession having weakened in the past three quarters. This is a major event since Germany is the engine that powers Europe.

A key concern for the German economy is that it mostly depends on the auto sector. Now, with many German companies pivoting to electric vehicles, there are concerns about the impact on the economy. EVs require fewer workers and companies from China and the US have a big market share.

Further, most German auto companies have a strong market share in China where companies like Xpeng, Li Auto, and Byd are dominating. In the US, firms like Tesla and Hyundai have a strong share of the EV market while German companies are struggling.

Another concern is that the German housing sector is seeing a major decline. House prices crashed by 6.8% in June as mortgage rates jumped. Several companies in the sector have filed for bankruptcy recently.

The DAX index also slipped after another set of weak economic numbers from Europe. According to Eurostat, the economy rose by 0.3% in Q2, Analysts believe that the recovery will take longer. European numbers are important for German stocks since most of them count the bloc as the biggest market.

Most importantly, liquidity in Europe has dried up as the European Central Bank (ECB) has delivered several interest rates this year.

DAX index forecast

The daily chart reveals that the DAX index has been under pressure in the past few weeks. It had formed a rising wedge pattern before the recent breakout. In price action, this is one of the most accurate bearish signs.

The DAX index has now moved below the 50-day and 100-day exponential moving averages (EMA). It is also nearing the important support level at €15,503. Therefore, I suspect that the index will soon have a bearish breakout as sellers target the key support at €15,000.

More By This Author:

Gold Price Forecast: Bullish Fundamentals And Technicals
Enbridge Signs A $14 Billion Deal With Dominion Energy
Canadian Stocks To Lag For Longer