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In terms of what coalition governments are likely to be, I think one thing is reasonably evident at this point: no Party is willing to work with the AfD to form a majority. Consequently, Merz and the CDU/CSU Party could form a majority government by teaming up with the SPD to create a ‘Grand Coalition’. A possible three-way Coalition may also be in the offing, where the two said Parties join forces with the Greens. Nevertheless, this may be problematic as CSU’s leader reportedly does not want to partner with the Greens.
Markets Ahead of the Election
As I briefly noted above, the DAX 40 has trended to the upside, which has largely been one-sided. I think the recent optimism has been bolstered by robust earnings, progress on peace talks between Russia and the US regarding the Russia-Ukraine conflict, and, of course, political anticipation of the CDU/CSU Party forming a coalition to loosen the ‘debt brake’.
For anyone new to technical analysis, the daily chart of the DAX 40 below is about as close as you will get to a textbook uptrend: a series of higher highs and higher lows. Technically speaking, dip buyers will closely watch the latest correction from Wednesday’s record high of 22,935 (a bearish engulfing formation, I might add), particularly between 21,368 and around 22,000 – a support zone. This area comprises a trendline support, taken from the low of 18,812, channel support, extended from the low of 17,024, and local horizontal support from 21,797.
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