Dax Forecast: Chops Near 50-Day EMA as Geopolitical Risks Rise

The German index has been choppy on Monday as we are trying to get a grasp on where we are going next.

DAX

The German index has been choppy on Monday as we are trying to get a grasp on where we are going next. There are a lot of questions to ask about the DAX going forward as we will have to worry about the disruption of energy coming out of the Middle East yet again as fighting intensified over the weekend, but as things stand right now, the liquefied natural gas coming out of Qatar is still intact, so maybe a little bit of a reprieve there. From a technical analysis standpoint, we are basically sitting right at the 50-day EMA and just below the 25,000 level, so that in and of itself is probably worth paying attention to.

Geopolitical Factors and Corporate Earnings Strains

The primary macro drivers, of course, are the Persian Gulf escalation and energy shocks possibly coming down the road, and we have also had a global tech unwind, so we'll have to see if that continues. That being said, we are fairly close to building up enough pressure to perhaps try to take out the 25,000 euro level and continue higher. We are in an uptrend and of course that is one of the most important things to pay close attention to.

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Some of the macro strains are starting to be shown in the Q2 earnings; for example, Ryanair shares dropped 7% midday following reports of declining earnings caused by elevated fuel costs and disrupted Middle East travel. The automotive sector, of course, has been in focus as Tesla has announced a rapid production expansion in its plant near Berlin, forcing domestic legacy automakers to reevaluate local market share. Unsurprisingly, the current geopolitical environment is providing tailwinds to defense contractors and companies tied to basic materials. So, with that being said, there is quite a bit going on at the time, but there seems to be an underlying bid here in Germany, and that is something that looks likely to continue.

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