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Focus Shifts to German GDP
On Friday, May 23, finalized Q1 GDP numbers for Germany will warrant consideration. According to preliminary data, the German economy expanded 0.2% quarter-on-quarter in Q1 2025 after contracting 0.2% in Q4 2024.
A higher print may ease concerns about a recession, driving demand for DAX-listed stocks. Conversely, a softer reading may fuel speculation about recession, tempering demand for German-listed stocks.
Beyond the data, ECB commentary needs monitoring. ECB chief economist Philip Lane could offer crucial insights into the bank’s rate path. Hawkish rhetoric may pressure the DAX, while support for multiple rate cuts may send the DAX higher.
Wall Street Mixed After Midweek Rout
Wall Street offered mixed signals on Wednesday, May 22, as easing Treasury yields offered market relief. The Nasdaq Composite Index gained 0.28%, while the Dow ended the session flat and the S&P 500 slipped 0.04%.
Late in the European session, US services sector data boosted demand for German-listed stocks. The S&P Global Services PMI rose from 50.8 in April to 52.3 in May, easing recession concerns.
10-year US Treasury yields briefly touched 4.627%, the highest since February 12, before ending the session down at 4.529%, supporting risk sentiment. However, lingering uncertainty about the effects of tariffs on US inflation and the Fed rate path remained market headwinds.
Fed Rhetoric Remains in Focus
Investors will continue tracking Fed speakers for policy cues. Commentary on inflation, labor markets, and rate cut timing will be pivotal.
Warnings about cutting rates too early amid tariff uncertainty could dent risk sentiment and send the DAX lower. Conversely, support for a Q3 Fed rate cut may boost risk appetite.
Beyond the Fed, trade developments continue to drive risk sentiment, particularly for the DAX.
DAX Outlook: Key Catalysts Ahead
In summary, the DAX’s near-term trajectory hinges on trade developments, economic data, and central bank signals.
- Bullish Case: Easing trade tensions, upbeat German GDP data, and dovish central bank signals could send the DAX toward 24,500
- Bearish Case: Rising trade friction, weak German GDP numbers, or hawkish central bank cues could drag the DAX toward 23,500.
As of Friday morning, the DAX futures were up by 24 points, while the Nasdaq 100 mini dropped 1 point, suggesting a cautious Friday session.
Technical Setup Suggests Cautious Optimism
Despite Thursday’s losses, the DAX remains above the 50-day and the 200-day Exponential Moving Averages (EMA), supporting a bullish bias.
- Upside Target: A break above the May 21 high of 24,152 could open the path to 24,350. A sustained move through 24,350 could enable the bulls to target 24,500.
- Downside risk: A break below 23,750 could expose 23,500, with further support at 23,000.
The 14-day Relative Strength Index (RSI) at 68.61 suggests the DAX could climb to 24,152 before entering overbought territory (RSI > 70).
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