DAX Post Fed Rally Fades as Domestic Issues Weigh

Yesterday’s rally was fueled by the Fed’s monetary loosening, but domestic issues take the front seat again as political instability arises.

The Fed yesterday cut interest rates by another 25 basis points; the market had been expecting the cut.

However, it helped fuel the DOW and NAS100 to new all-time highs. The bullish sentiment also spurred a rally for the DAX, which gained 1.73% on the day, but is down 1.09% this morning.

The German stock market’s attention has turned back to the evolving political situation. On Wednesday, the prime minister Scholz fired his finance minister and ended the 3-way government coalition.

Differences in spending and industry policy finally led to a rapture. German voters, industry, and parliament are now calling for the caretaker government to call an early election. The CEO of Evonik Industries has stated the need for elections as soon as possible.

The current state of affairs means that the government will be stifled in any attempts to lead a weak economy out of a possible recession. Trump’s presidential election is also raising concerns.

The new president’s plans for tariffs mean that German exporters pay a high price in revenue loss. The IW institute believes Trump’s tariffs could cause the German economy to shrink by as much as 1.5% in 2027.

Technical View

The chart above for the DAX shows a market that is still technically in a bullish trend with prices above the Ichimoku cloud. However, signs of weakness also appear on the chart. The RSI has failed to rise above the level of 70 on each of the last 3 bullish legs.

These legs are the upward waves of the 5 wave Elliot system. On each rise higher the market failed to achieve considerable momentum. This failure is an indication to the weakness of this last rally.

The market will find immediate support on the top of the cloud, which coincides with a previous high of 19,050 (red line). Further support will be found within the cloud at 18,785 (blue line) and 18,601 (black line).