DAX 40: dominant risk of correction below 15,000 points

The DAX 40 marks a step ahead of the Fed and ECB Minutes

The DAX 40 has stalled with its European counterparts for several sessions after coming back close to major resistance. The German index has come back close to the neck line of its former head and shoulders reversal pattern at 15,000 points in recent days, but could start another leg down as risk appetite dissipates.

Indeed, the renewed risk appetite is tempered by less than optimistic news of the peace talks in Ukraine. Moscow recently contradicted reports of significant progress in peace talks and said conditions were not ripe for a meeting between Putin and Zelensky.

The emergence of economic uncertainties has also calmed investors’ appetite for risk since the inversion of the yield curve. The US 2-year yield has exceeded the 10-year yield, a phenomenon that has occurred before every US recession for over 50 years.

Finally, the tone of central bankers continues to harden, which penalizes risky assets. FOMC Committee member Lael Brainard, traditionally a dovish supporter, said she expects the Fed’s balance sheet to shrink much faster than during the previous monetary tightening, as soon as May.

Investors are now waiting for the Fed and ECB Minutes this Wednesday evening and Thursday to find out a little more about the central bankers’ motivation.

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