GER30 Slowly Moves Towards Another Profitable Week

GER30 Analysis

The German Index gains around 10% this month and heads towards its eighth profitable week – the best streak since 2018, helped by encouraging economic data. The economy expanded by 0.4% q/q in the third quarter, which is better than expected and the 0.1% growth of Q2, while the IFO Business Climate improved significantly in November, according to yesterday’s data.

However, Germany may not be able to avoid a recession next year and the OECD projects a GDP contraction of 0.3% in 2023, according to this week’s updated forecasts.

Markets are also trying to assess the ECB’s next step, as it has been very vague around the terminal rate. The central bank runs the most aggressive rate hike cycle in history and some officials seem to favor a slowdown in the pace of tightening. Thursday’s accounts of the last meeting in which the ECB had raised rates by 75 basis points, showed that a “few members” wanted a smaller adjustment.

On the other side of the Atlantic, minutes from the Fed reveled that a “substantial majority of participants” believe that a moderation in the pace of rate hikes “would likely soon be appropriate”, as monetary policy approaches a sufficiently restrictive level.

The recent profitable streak of GER30 may be impressive, but progress has been slow over the last couple of weeks and the Daily chart reveals the most overbought conditions since the 2021 record high. On the other hand, the EMA50 approaches the slower EMA200 and a cross above (Golden Cross) could be a precursor of further gains.

A return back to the 14,000 handle would not be surprising, but a significant and sustained deterioration in sentiment would be needed for a steeper decline that would challenge 13,670-50.

Bulls however are clearly in control and any limited pullback could give them room for further advance. GER30 has covered around 60% of 2022 High/Lows drop and eyes 14,960-15,000, but it will likely need fresh impetus for taking it out and bring 15,739 in the spotlight.