DE 40 forecast: the index is testing support

The DE 40 stock index may enter a downtrend if the support level is broken. The DE 40 forecast for today is positive.

DE 40 forecast: key takeaways

• Recent data: Germany’s inflation rate came in at 2.1% year-on-year
• Market impact: the data creates a negative backdrop for the German equity market

DE 40 fundamental analysis

Annual inflation in Germany came in at 2.1%, above expectations of 2.0% and up from the previous reading of 1.8%, meaning price growth accelerated and slightly exceeded the forecast. For the equity market, this is important primarily through expectations for monetary policy: higher inflation reduces the scope for rapid policy easing and increases the likelihood that interest rates in the eurozone will remain elevated for longer than the market had anticipated. In such conditions, bond yields typically rise, making stocks less attractive than risk-free instruments.

For the DE 40 index, the effect is more often moderately restraining in the short term. Accelerating inflation does not in itself signal an economic downturn, but it raises the risk of more expensive financing and more cautious profit expectations in sectors sensitive to interest rates and domestic demand. Moreover, some companies in the index are export-oriented, and if the euro strengthens on the back of the data, this may further limit revenue growth when converted into euros.

DE 40 technical analysis

For the DE 40 index, the key resistance level lies at 25,460.0, while the support level is located around 24,460.0. Recently, the index has been in a correction phase and has tested the support area. The nearest target for a recovery could be 25,940.0.

The DE 40 price forecast considers the following scenarios:

• Pessimistic DE 40 scenario: a breakout below the 24,460.0 support level could push the index down to 23,905.0
• Optimistic DE 40 scenario: a breakout above the 25,460.0 resistance level could propel the index up to 25,940.0

Summary

The CPI release above forecast, showing acceleration compared to the previous month, is highly likely to create a moderately negative or neutral-to-negative backdrop for German equities and the DE 40 in the near term, as it reinforces expectations of a longer period of relatively high interest rates. However, the scale of the reaction is likely to be limited, as the deviation from the forecast is small, and further dynamics will depend on subsequent inflation data and signals from the European Central Bank. The nearest upside target remains the 25,940.0 level.

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