DAX index forecast for May 2022

Germany’s DAX index advanced on Friday and closed the week above 14,000 points even as investors digested rising inflation as well as a decline in euro area industrial production.

According to the Federal Statistical Office, the consumer price index in Germany rose 7.4% in April (year-over-year), and the inflation rate reached an all-time high for the second month.

European Central Bank officials believe that inflation is likely to continue higher than predicted for longer, and as for the whole of Europe, rising inflation is a threat to the German economy.

European Central Bank officials stated that they would be comfortable hiking rates, but the focus will continue to be on financial stability.

Another negative news is that industrial production in the euro area fell 1.8% in March from February and declined 1.2% in the European Union.

On the other side, Russia’s attack on Ukraine remains in focus, while tensions between Russia and western nations fueled the risk-averse mood.

Ukrainian President Volodymyr Zelenskiy said that the international community should take seriously the threat that Russia could use nuclear weapons in Ukraine.

Finland has announced it would drop its neutral stance and apply to join NATO, while Sweden is considering a similar move.

Russian Deputy Chairman Dmitry Medvedev warned that Russia would take “retaliatory steps” over neighboring Finland’s push into NATO, and for now, we cant see the light at the end of the tunnel.

The war between Ukraine and Russia continues to cause supply chain issues for many companies that look to find other sources for their parts. Raw materials and commodities prices have surged since the invasion, intensifying already-high inflation.

In an effort to reduce the EU’s dependence on Russian energy, the US agreed to increase liquid natural gas (LNG) exports to the EU, but it is important to say that a potential embargo on Russian gas would weigh on the production of many companies in Germany. Chief Executive Officer of Lanxess, Matthias Zachert, said:

In the event of a gas embargo, which would have “catastrophic consequences” for the German chemicals sector, production at the most gas-intensive sites would be shut down, while a reduction in output would be needed at other plants.

Technical analysis

Germany’s DAX index has recovered from its lows reached at the beginning of the week and closed the week at 14,027 points.

If the price falls below the 13,500 support level, the next target could be around 13,000 or even below. On the other hand, if the price jumps above 14,500 points, the next target could be 15,000 resistance.

Summary

Germany’s DAX index has recovered from its lows, but the risk of another decline still persists, especially if the Ukraine crisis worsens. Finland has announced it would drop its neutral stance and apply to join NATO, while Russian Deputy Chairman Dmitry Medvedev warned that Russia would take “retaliatory steps” because of this move.

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inflation
commodities
central bank

Author: Stanko Iliev