The Dax fell pretty significantly during the trading session on Friday to test the 200-day EMA and the 24,000 level.
The 24,000 level has been important multiple times, and I think continues to be an area that a lot of people will be watching.
The market bouncing from there opens up the possibility of a move to the 24,400 level and I will be watching the German interest rates in order to try to get a gauge on whether or not that can happen.
The 10-year yield is above 3% and is actually screaming higher and that is something that we need to watch very closely. Keep in mind that energy inflation is a very real possibility in Germany and that will crush corporate profits in the manufacturing sector which is a big part of the Dax index.
Macro risks and interest rate sensitivity
It is because of this that I am watching this very closely because if the interest rates in Germany continue to climb, I think we break the back of support here. On the other hand, if the interest rates start to drift lower then it could provide a short-term buying opportunity.
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That would just be simple consolidation which would make a certain amount of sense but it is difficult to get overly bullish heading into the weekend when you can count on some type of headline causing chaos coming out of the Middle East and that will end up being the big driver of where we go next.
It is not really about German productivity or demand; it is about German energy, or I should say the supply of energy in Germany.
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