I have broken down my prediction from both a fundamental and technical point of view below:
Fundamental:
The German economy has been one of the largest underperformers in Europe since the invasion of Ukraine by Russia, with its GDP currently still 0.2% behind that of when the invasion first occurred. Economists are currently forecasting a strong recovery in GDP, with the upcoming four quarters of the new year all showing growth of between 0.2% - 0.5%. The estimate that Germany will see four quarters of GDP growth next year is not one that I see likely, especially with Germany being a nation which is a net exporter. Developed nations around the world have aggressively hiked interest rates in a bid to slow consumer spending and curb inflation, however, the impacts of these rate hikes are not typically felt until 12 - 18 months later. In 2024 there is approximately 50% more US corporate debt($800bn vs $550bn) due to mature than there was in 2023 (Ref: Goldman Sachs). Many corporations will suffer from refinancing at higher rates, which will in turn have a significant impact on the US economy, as unemployment levels rise. This will drive a reduction in demand for luxury German exports and could see Germany turn into a net importer, due to it's energy dependency.
Technical:
The recent surge in the indices over the last two weeks is beginning to show signs of exhaustion, with indicators now flashing overbought readings. The expectation is that there will be consolidation in the short term, before a final move higher to complete the five waves.
In the new year I expect to see a topping pattern form, such as the head and shoulders pattern shown. Seasonality depicts that the first three months of the year are poor for the DAX, with a rally seen from mid March through to the end of April. This will be the first wave down to the horizontal support zone at 14,650, with a bounce in April, back to the volume shelve at 15,200. The third wave will coincide with seasonal weakness from May - July and the first quarter miss in GDP estimates. The end point of this structure will be the trend line established at the start of 2021, depicting a price of 9,300.
Fundamental:
The German economy has been one of the largest underperformers in Europe since the invasion of Ukraine by Russia, with its GDP currently still 0.2% behind that of when the invasion first occurred. Economists are currently forecasting a strong recovery in GDP, with the upcoming four quarters of the new year all showing growth of between 0.2% - 0.5%. The estimate that Germany will see four quarters of GDP growth next year is not one that I see likely, especially with Germany being a nation which is a net exporter. Developed nations around the world have aggressively hiked interest rates in a bid to slow consumer spending and curb inflation, however, the impacts of these rate hikes are not typically felt until 12 - 18 months later. In 2024 there is approximately 50% more US corporate debt($800bn vs $550bn) due to mature than there was in 2023 (Ref: Goldman Sachs). Many corporations will suffer from refinancing at higher rates, which will in turn have a significant impact on the US economy, as unemployment levels rise. This will drive a reduction in demand for luxury German exports and could see Germany turn into a net importer, due to it's energy dependency.
Technical:
The recent surge in the indices over the last two weeks is beginning to show signs of exhaustion, with indicators now flashing overbought readings. The expectation is that there will be consolidation in the short term, before a final move higher to complete the five waves.
In the new year I expect to see a topping pattern form, such as the head and shoulders pattern shown. Seasonality depicts that the first three months of the year are poor for the DAX, with a rally seen from mid March through to the end of April. This will be the first wave down to the horizontal support zone at 14,650, with a bounce in April, back to the volume shelve at 15,200. The third wave will coincide with seasonal weakness from May - July and the first quarter miss in GDP estimates. The end point of this structure will be the trend line established at the start of 2021, depicting a price of 9,300.