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President Trump reaffirmed plans to roll out tariffs on Canada and Mexico, effective March 4, with sweeping reciprocal tariffs due in April. Markets fear higher tariffs could fuel inflationary pressures, potentially leading to a more hawkish Fed rate path, which may increase borrowing costs and affect corporate earnings.
US Consumer Confidence and the Fed in Focus
On February 25, consumer confidence trends will influence sentiment toward the Fed rate path and demand for risk assets. Economists forecast the CB Consumer Confidence Index to fall from 104.1 in January to 103 in February.
A sharper fall in sentiment could signal a pullback in spending, impacting the US economy and inflation. A softer inflation outlook may revive hopes for an H1 2025 Fed rate cut. Conversely, an unexpected rise could indicate higher spending, fueling demand-driven inflation. A higher inflation outlook could force the Fed to maintain its hawkish policy stance for longer, influencing borrowing costs and corporate earnings.
Beyond the data, traders must monitor tariff-related developments and Fed forward guidance. Continued tariff threats and hawkish Fed signals could pressure the DAX.
Near-Term Outlook
The DAX’s near-term trajectory will depend on US economic data and central bank commentary:
- Stronger US data and rising inflation could lower bets on ECB and Fed rate cuts, potentially pulling the DAX toward 22,000.
- Weaker data and softer inflation may support more dovish central bank outlooks, pushing the DAX above 23,000.
Additionally, geopolitical risks and trade relations remain pivotal:
- US-EU trade tensions could weigh on German stocks, while hopes for a US-EU trade deal may drive the Index to record highs.
- The German elections and coalition negotiations also need consideration.
As of Tuesday morning, US futures pointed to a choppy session, with the Nasdaq 100 mini down 44 points.
DAX Technical Indicators
Daily Chart
After Monday’s gains, the DAX remains well above the 50-day and 200-day Exponential Moving Averages (EMAs). However, the recent drop below 22,500 suggests increased volatility despite the broader bullish trend.
If the DAX breaks above 22,500, it could target the record high of 22,935. A breakout from 22,935 may bring the 23,000 level into play.
Conversely, a DAX drop below 22,350 could indicate a fall toward 22,150. A fall through 22,150 would enable the bears to target 22,000.
With the 14-day Relative Strength Index (RSI) at 62.59, the DAX could return to the record high of 22,935 before entering overbought territory (RSI higher than 70).
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