Germany 40 – Facing a Potential August Sentiment CrisisGerman 40 IndexPEPPERSTONE:GER40PepperstoneThe strength and longevity of the recent surge to new all-time highs at 26595 (August 12th) in the Germany 40 has been called into question this week as bullish sentiment toward the index has been hit hard by a spike in global bond yields which has reflected growing concerns amongst traders regarding inflation risks at a time when the situation between the US and Iran in the Middle East seems to be deteriorating again. Throw in worries about the increased borrowing by several key companies to fund their artificial intelligence build outs alongside a fresh wobble in demand for chipmaker stocks, and it’s perhaps easier to understand why after opening on Monday at 26495, the Germany 40 has dropped down to test some potentially important technical levels around the 26000 level at the time of writing (0645 BST). More on this in the technical update below. Looking forward, while traders may be keeping a close watch on events in Iran and the direction of global bond yields, which eased back from their recent highs yesterday, sentiment toward the Germany 40 index into the weekly close could also be impacted by the release of the latest preliminary PMI surveys on Friday for Germany at 0815 BST and the Eurozone at 0900 BST. Readings above 50 signify economic expansion, while below 50 suggest economic contraction. Any indication from these surveys that economic growth may be starting to stall again moving through Q3 could weigh on index prices, while stronger data could be taken more positively. Technical Update: Failure at Resistance But Watching Support: So far this week the Germany 40 index has seen selling pressure develop to reverse recent price strength and prompt a setback. Interestingly, from a technical perspective, as the chart below shows, this setback has materialised after consistent failure to close above what may be viewed as a key resistance at 26451. This level is equal to the 38.2% Fibonacci extension of the sell‑off seen between 25942 (July 6th high) and 24617 (July 17th low). Moving forward into early next week, traders could now be wondering whether the current price weakness may develop into a more extended phase of declines or could simply be a limited correction within an ongoing uptrend. At such a pivotal time, identifying potentially important support and resistance levels that may prove instrumental in determining the next directional themes for the Germany 40 index, may be an invaluable aid to decision making. Potential Resistance Levels: As suggested above, the 38.2% Fibonacci extension level at 26451 could represent the first key resistance, especially given it capped prices and helped to establish this week’s latest declines. As such, closing breaks above 26451 may now be required to open the way for challenges of higher resistance points. A close above 26451 could shift attention toward the next resistance level at 26763 (61.8% extension). A break above 26763 could then open the way for moves toward 27269 (100% extension). Possible Support Levels: While resistance at 26451 continues to cap Germany 40 prices on a closing basis, it could leave open the possibility of slowing upside momentum. If this is the case, the first support may be 26037, which is the current level of the Bollinger mid‑average. As the chart highlights, closing breaks below 26037 could shift focus toward the next potential support at 25846 (38.2% Fibonacci retracement). Closes below 25846, if seen, could then open the way for declines to 25613 (50% retracement), and even 25380 (61.8% level). The material provided here has not been prepared accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients. Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.