CAC 40, DAX index outlook as China economic growth stalls

The DAX index and CAC 40 indices have pulled back in the past few days as the recent rally faded. The German DAX 40 index retreated to a low of €15,750, which was ~3.30% below the highest level this year. Similarly, the French CAC 40 index retreated to €7,200, ~5.75% below the year-to-date high.

Germany and France inflation

European indices have come under intense pressure in the past few days as investors start taking profits following the recent remarkable rally. These indices have been some of the best-performing indices this year, with CAC 40 and DAX indices sitting close to their all-time high.

The most recent European news is on inflation. In France, the country’s inflation continued falling in as natural gas prices slip. In France, the headline consumer price index dropped from 0.6% in April to -0.1% in May. On a year-on-year basis, the CPI dropped from 5.9% to 5.1%, the lowest level in months.

Other European countries are also seeing inflation slip.As I wrote in this article, Spain’s consumer inflation dropped by 0.1% in May and by 3.2% on a YoY basis. Further, in Italy, the harmonised inflation figure dropped by 0.1% in May. 

Analysts believe that the German consumer inflation data dropped by 0.6% in March while the harmonised inflation fell to 8.9%. 

The other important European data was France GDP and the German jobs numbers. In France, the economy expanded by 0.2% on a QoQ basis while the unemployment rate in Germany remained at 5.6%.

The CAC 40 and DAX indices are also slipping as investors focus on the US debt ceiling issue and the slowdown in China. Data published on Wednesday showed that the manufacturing PMI dropped to 48.8 in May and non-manufacturing PMI fell to 54.5.

CAC 40 index forecast

CAC 40 chart by TradingView

The daily chart shows that the CAC 40 index has been in a slow downward trend in the past few days. It has moved below the important support at €7,380, the highest point on March 3 and January 5 last year. The shares have moved below the 50-day and 100-day exponential moving averages (EMA). 

The Relative Strength Index has moved slightly below the neutral point. Therefore, there is a likelihood that the index will continue falling as sellers target the key support at €7,000. A move below that level will see it drop to €6,798, the lowest point on March 20th.

DAX index forecast

DAX chart by TradingView

The DAX 40 index has been in a strong bullish trend in the past few months. Unlike the CAC 40 index, it remains above the 50-day and 100-day moving average. It has retested the key support at €15,750, the highest point on March 7. Therefore, the index will likely continue rising as buyers target the next key resistance point at €16,290, the YTD.