German yields continue to rise, which is putting pressure on the DAX overall. At this point, it is worth watching the 10-year yield, and if it can drop below 3% again.
DAX
German yields continue to cause headaches for the DAX as we are looking very much like a market that is moving on concerns about energy. Energy prices rising the way they have will cause problems for the German industrial base, which is a major part of the DAX. I do not think at this point you're looking for some type of major meltdown; I just believe that we have a scenario where the markets are perhaps trying to sort out what to do next.
The concerns in the Middle East will continue to be concerns for the European Union as a huge portion of its energy is now threatened. In fact, we don't even know where they will be getting natural gas from. If that's going to be the case, the German index is going to struggle mainly due to the fact that the industrial base demands so much energy input.
Energy Concerns and Industrial Impact
That being said, we are still very much in a consolidation range. Despite the fact that we are actually testing the bottom of it, the reality is that this is a market that continues to see plenty of interest and I do think it is probably only a matter of time before we try to get back to the 24,400 level.
If we were to break down below the 50-day EMA, that could be rather ugly as it could open up a move down to 23,400 euros. If we break down below there, then the 23,000 level gets targeted next. Ultimately, I think this is a situation where traders are looking to get a little bit of stability in the 10-year yield in Germany, which is currently just under 3.10%. As long as those yields continue to climb, I think it does make the whole idea of the DAX taking off to the upside a bit unlikely. If you have major issues with energy inflation, that causes major issues with the German industrial base.
Potential signal: I am buying the DAX if the 10-year yield in Germany dips below the 3% level with a 200-point stop. I would aim for the 25,000 area, or even more.