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DAX Forecast: Index Continues to Churn Sideways – 26 May 2022

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Keep in mind that there are a lot of concerns when it comes to the European Union, and we will have a lot of concerns when it comes to Germany.

The German DAX Index fell a bit on Wednesday as we continue to hang about the EUR14,000 level. The EUR14,000 level also coincides quite nicely with the downtrend line that I have drawn on the chart, making up the top of the channel. Because of this, it makes a certain amount of sense that we will continue to struggle. Further exacerbating the idea of resistance is going to be that the 50-day EMA sits just above, so I do think that it is going to be somewhat difficult for the DAX to take off to the upside.

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That being said, anything is possible and I would pay very close attention to this market if we did rally. Breaking above the highs of the last week or so would be a strong sign, perhaps opening up a move to the EUR14,500 level. After that, we have the 200-day EMA, currently sitting just below the EUR14,800 level. Breaking above all of that would obviously be a huge swing to the upside and would show a massive change in overall attitude.

If we break down below the bottom of the candlestick for the trading session on Wednesday, it allows the market to go much lower. At that point, the market will more likely than not try to get to the bottom of the overall channel. Ultimately, we are at an inflection point, so it’ll be worth noting where the next impulsive candlestick forms. Keep in mind that there are a lot of concerns when it comes to the European Union, and we will have a lot of concerns when it comes to Germany. The German economy is the bellwether for the content, so you need to pay close attention to what’s going on here.

The ECB recently has suggested a 25 basis point rate hike is in the pipeline. That would in theory be bad for stocks, but at the moment you still have to keep in mind that the central banks probably have very little chance of getting overly tight, and I believe that traders are starting to bank on that. In that scenario, we may see a recovery in some of the stock indices. If we break down below the bottom of the candlestick for the trading session on a significant red candlestick, then I would look at the 13,600 level as a target.

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