After breaching the 17,000 points level for the first time in history, the DAX index is facing a correction. The index closed the week at 16,751 points as the markets digested the monetary policy changes in EU, UK, and US due to the interest rate decisions by the respective central banks.
Although the European Central Bank (ECB) kept the rates steady in its recent meeting, it still pushed back expectations of early rate cuts. This caused a pullback in German equities from their record highs. A similar stance was taken by the Bank of England.
While the US Federal Reserve also kept the rates constant for the third consecutive FOMC meeting, its recently concluded FOMC meeting hinted at three rate cuts in 2024. This gave the investors in the eurozone a reason to expect a less hawkish approach by ECB and BOE as well.
Another bad news, which is actually good news for the DAX index, is the contraction in the PMI figures of the German private sector in December. Consequently, employment levels are declining at a pace not seen since August 2020.
An increase in unemployment may force the ECB to start cutting rates sooner than currently expected.
DAX Index Forecast & Technical Analysis
The benchmark index of the German equities is hovering at record highs after breaking above the 16,281 resistance level which was a previous ATH. To aim for more upside, I would like to see a retest and bounce from this level in order to flip it into support. This retest could propel the index toward 17,672 which is the 1.618 fib retracement level as visible in the following chart.
However, the Dax index forecast will flip really bearish if the index plummets below the 16,281 points level. In this case, the outlook will turn very negative. This may only happen if the European economy enters a recession sometime next year.