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DAX loses 16,000 EUR threshold amid worsening sentiment

The German DAX suffered a correction, but dip buyers could jump in any minute as the fundamental situation has not change and remains bullish.

German DAX index was down six days in a row, dropping every day this week as traders took some profits from the recent impressive rally. At the time of writing, it was trading 0.15% weaker on Friday, dropping below the psychological 16,000 EUR mark.

Earlier today, the ECB meeting accounts from the central bank’s last meeting were released.

ECB still ultra dovish

The view was held that judging on the basis of the current developments, net purchases under the Pandemic Emergency Purchase Programme could be expected to come to an end by March 2022, according to Reuters.

Moreover, it was seen as likely that in the December 2021 Eurosystem staff projections the shorter-term inflation outlook for the euro area would once again be revised upwards Lastly, At the current juncture, the accommodative monetary policy stance had to be reconfirmed & monetary policy had to be patient.

Investors also paid attention to the German GDP data. The year-on-year change was kept at 2.5% in the third quarter, while the quarterly change was revised slightly lower to 1.7%, down from 2% in the second quarter. In addition, the Gfk consumer confidence survey crashed to -1.6 in December, down from 1 in November.

At the same time, German IFO fell for the 5th straight month to lowest level since February . Considering another round of restrictions in Europe, the last quarter of the year will likely be economically weak.

The euro is down nearly 10% against the greenback in 2021, boosting European equities as there is usually a negative correlation between the euro and German stocks.

Additionally, the European Central Bank remains the most dovish major central bank, confirming several times it does not plan to raise rates in 2022. When compared with the Fed, the US central bank is now expected to raise rates three times in 2022.

The large divergence in monetary policies could keep pressure on the EURUSD pair, further boosting the price of EU stocks.

Short-term looks bearish, long-term remains bullish

As long as the index trades below previous highs of 16,000 EUR, the immediate outlook seems bearish , targeting yesterday’s lows at 15,775 EUR. From the medium-term perspective, the key support will be at the 200-day moving average at around 15,400 EUR.

Alternatively, if the DAX jumps above 16,000 EUR again, we could see the continuation of the rally toward the current all-time highs near 16,250 EUR.

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