Germany 40: Entering a Period of Big Event Risk
In some ways it was no surprise to see the Germany 40 index fall 1.8% yesterday, which was its biggest drop for well over 2 months. After all it has been quite a rally to start the year and there had to be some profit taking at some stage, surely!
The rally has seen multiple record all-time highs hit, supported by an improving earnings backdrop, hopes of a peace deal in Ukraine, delays to the trade tariffs threatened by President Trump and rate cuts from the ECB.
However, some uncertainty has started to creep in across this new trading week about the ability of the Germany 40 index to sustain this current uptrend. President Trump has talked about imposing import tariffs of up to 25% on imports of automobiles, semiconductors and pharmaceuticals, which could start in early April, not good news for the German exporters.
ECB committee member Schnabel suggested in an interview with the FT, that the ECB will have to discuss taking a break from rate cuts soon, or even consider stopping altogether, which cast some doubt on market expectations for ECB rate cuts across the rest of the year, while the cost of peace in Ukraine also doesn’t look as positive for European nations as it potentially did only a week ago.
Oh, and there is an election in Germany over the weekend, which while initially supporting gains in the Germany 40 index at the start of 2025 on optimism the country may loosen its strict borrowing rules, has now reached a reality check moment, given that election outcomes rarely run smoothly. For a deeper dive into the potential market impacts of the upcoming election, check out our 2025 German Federal Election Preview.
For a deeper dive into the potential market impacts of the upcoming election, check out our 2025 German Federal Election Preview.
So, with this in mind, accompanied by the preliminary February PMI survey updates tomorrow for Germany (0830 GMT) and Eurozone (0900 GMT), event risk and the potential for volatility moving into to next week is elevated.
Looking at the Technical Picture.
After what has been an extended phase of price strength during February, the German 40 index finally saw a correction develop on Wednesday, as a possible reaction to over-extended upside price conditions materialised.
However, we all know, prices never move in straight lines, be it to the up or downside. It could even be argued that this weakness within an uptrend, is a healthy correction that unwinds upside extremes before further price strength emerges, and that may be the case for the Germany 40, as long as important support levels remains intact.
So, is this latest weakness a normal limited reaction to over-extended upside conditions, or has an important high been posted at 22936 on February 19th, from which an extended phase of price weakness may develop?
Currently, this is an impossible question to answer with anything more than a low conviction outlook but monitoring the key support levels moving forward may help us to establish the next directional themes.
What are the German 40 Index Support Levels to Monitor?
If the sell off was to extend further to the downside then it may be worthwhile for traders to watch how well Fibonacci retracement levels of the February advance perform as support levels.
The 38.2% retracement stands at 22236, which could mark an area where buyers materialise again. However, this point giving way may in turn lead to a continuation of recent weakness towards 22020, which is the deeper 50% retracement.
Closing defence of 22020 could be watched, as while intact, it’s possible further attempts to extend positive themes may be on the cards, which could even lead to retests of the 22936 February 19th all-time.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
The rally has seen multiple record all-time highs hit, supported by an improving earnings backdrop, hopes of a peace deal in Ukraine, delays to the trade tariffs threatened by President Trump and rate cuts from the ECB.
However, some uncertainty has started to creep in across this new trading week about the ability of the Germany 40 index to sustain this current uptrend. President Trump has talked about imposing import tariffs of up to 25% on imports of automobiles, semiconductors and pharmaceuticals, which could start in early April, not good news for the German exporters.
ECB committee member Schnabel suggested in an interview with the FT, that the ECB will have to discuss taking a break from rate cuts soon, or even consider stopping altogether, which cast some doubt on market expectations for ECB rate cuts across the rest of the year, while the cost of peace in Ukraine also doesn’t look as positive for European nations as it potentially did only a week ago.
Oh, and there is an election in Germany over the weekend, which while initially supporting gains in the Germany 40 index at the start of 2025 on optimism the country may loosen its strict borrowing rules, has now reached a reality check moment, given that election outcomes rarely run smoothly. For a deeper dive into the potential market impacts of the upcoming election, check out our 2025 German Federal Election Preview.
For a deeper dive into the potential market impacts of the upcoming election, check out our 2025 German Federal Election Preview.
So, with this in mind, accompanied by the preliminary February PMI survey updates tomorrow for Germany (0830 GMT) and Eurozone (0900 GMT), event risk and the potential for volatility moving into to next week is elevated.
Looking at the Technical Picture.
After what has been an extended phase of price strength during February, the German 40 index finally saw a correction develop on Wednesday, as a possible reaction to over-extended upside price conditions materialised.
However, we all know, prices never move in straight lines, be it to the up or downside. It could even be argued that this weakness within an uptrend, is a healthy correction that unwinds upside extremes before further price strength emerges, and that may be the case for the Germany 40, as long as important support levels remains intact.
So, is this latest weakness a normal limited reaction to over-extended upside conditions, or has an important high been posted at 22936 on February 19th, from which an extended phase of price weakness may develop?
Currently, this is an impossible question to answer with anything more than a low conviction outlook but monitoring the key support levels moving forward may help us to establish the next directional themes.
What are the German 40 Index Support Levels to Monitor?
If the sell off was to extend further to the downside then it may be worthwhile for traders to watch how well Fibonacci retracement levels of the February advance perform as support levels.
The 38.2% retracement stands at 22236, which could mark an area where buyers materialise again. However, this point giving way may in turn lead to a continuation of recent weakness towards 22020, which is the deeper 50% retracement.
Closing defence of 22020 could be watched, as while intact, it’s possible further attempts to extend positive themes may be on the cards, which could even lead to retests of the 22936 February 19th all-time.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Global risk Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading in CFDs. You should consider whether you understand how CFD
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Global risk Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading in CFDs. You should consider whether you understand how CFD
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.