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Wall Street Gains Despite US Downgrade
Wall Street posted gains on May 16, amid easing US-China trade tensions. The Nasdaq Composite Index gained 0.52%, while the Dow and S&P 500 rose 0.78% and 0.70%, respectively.
Economic data sent gloomy signals. While consumer sentiment weakened, one-year inflation expectations unexpectedly jumped 6.5% in April to 7.3% in May, testing bets on a Q3 2025 Fed rate cut. The combination raised stagflation concerns as the Fed continues sending rate hold signals.
Meanwhile, Moody’s downgraded the US credit rating from Aaa to Aa1, impacting risk sentiment by denting demand for risk assets.
Fed Speakers in Focus
In the May 19 US session, Fed speakers will be in focus. Views on the labor market, inflation, and tariffs could give insights into the Fed’s interest rate outlook. Support for a Q3 2025 rate cut may boost demand for risk assets, while hawkish rhetoric could pressure rate-sensitive stocks.
While US labor market data has shown resilience, inflationary pressures have softened.
Beyond the data, trade headlines remain a key driver for risk appetite, especially for the DAX.
DAX Outlook: Trade and Central Banks to Dictate Trends
The DAX’s short-term outlook depends on several factors, including trade developments, economic data, corporate earnings, and central bank guidance.
- Bullish Case: Easing trade tensions, positive earnings, upbeat US data, and dovish central bank rhetoric could send the DAX toward the May 12 high of 23,912.
- Bearish Case: Rising trade friction, weak earnings, disappointing data, or hawkish central bank chatter could send the DAX toward 23,000.
As of Monday morning, the DAX futures were up by 7 points, while the Nasdaq 100 mini slid 252 points, suggesting a cautious start.
Technical Setup Suggests Cautious Optimism
After Friday’s gains, the DAX remains well above the 50-day and the 200-day Exponential Moving Averages (EMA), indicating bullish momentum.
- Upside Target: A break above the May 16 high of 23,887 would enable the bulls to target the record high of 23,912. Increasing buying pressure could signal a move toward 24,150.
- Downside risk: A break below 23,750 may bring 23,500 into play, with 23,000 as the next key support.
The 14-day Relative Strength Index (RSI) at 68.17 indicates the DAX has room to climb toward 23,912 before entering overbought territory (RSI > 70).
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