DAX 40 continues to push to new highs

The DAX 40 has extended its rally to six consecutive sessions, pushing firmly into record territory and highlighting strong underlying bullish momentum. This persistence suggests that investors have been willing to buy into strength rather than take profits, a sign of confidence supported by both global and local drivers. Technically, the index has benefitted from sustained dip-buying and a lack of meaningful downside catalysts, allowing the trend to remain intact.

Drivers of the Rally

A key driver of the rally has been the broader improvement in global risk appetite. Strength in US equities, optimism around growth themes such as AI, and fading fears of aggressive further monetary tightening have helped lift equity sentiment worldwide. As a cyclical and export-heavy index, the DAX tends to outperform in these risk-on environments, attracting inflows as investors rotate into economically sensitive markets.

Sector performance has also played an important role. Industrial heavyweights and defence-related stocks have delivered strong gains, providing significant support to the index given their large weightings. This has allowed the DAX to advance even as domestic German economic data remains mixed. The index’s global revenue exposure means earnings prospects are more closely tied to international demand than to Germany’s near-term growth outlook alone.

Expectations around European Central Bank policy have further underpinned the move. Softer inflation dynamics in the euro area and the perception that the ECB has no reason to start tightening again have helped support equity valuations, particularly for rate-sensitive sectors. Compared with the US, European policy expectations appear more benign, which has encouraged relative inflows into European equities, including the DAX.

Geopolitical Risks

Despite the positive momentum, geopolitical tensions present a meaningful risk premium that could temper sentiment. Iran is experiencing intense internal unrest sparked by its deepening economic crisis, steep currency depreciation, and nationwide protests, which have now spread across provinces and drawn heavy crackdowns by authorities.

While the DAX’s rally reflects optimism and technical strength, geopolitical risk, especially as it relates to Iran’s unrest and US-Iran tensions, represents a latent headwind that could dampen sentiment if events escalate further. Risk-off impulses triggered by sharp geopolitical shocks typically benefit safe havens (bonds, gold) and can weigh on equities, particularly cyclicals and export-exposed indices like the DAX. In the near term, markets may remain resilient as long as geopolitical developments stay contained, but a sudden spike in tensions, military engagement, or significant disruptions to energy supply routes could prompt a swift reappraisal of risk assets.

What to watch next

While momentum remains strong, the rally is not without risks. After several consecutive gains, the index is more vulnerable to short-term profit-taking, especially if incoming macro data disappoints or if global risk sentiment deteriorates. In the near term, the sustainability of the move will depend on whether supportive global conditions persist and whether buyers continue to defend recent breakout levels. A period of consolidation would not be unusual after such a run, but the broader trend remains constructive as long as risk appetite holds.

On the daily chart we can see that the DAX 40 has broken above the range that held throughout most of 2025, with the move above 25,000 a key psychological milestone. However, the RSI has started to venture into overbought territory for the first time since February last year, which could attract some selling momentum.

DAX 40 daily chart
 
Past performance is not a reliable indicator of future results.