The Dax index fell sharply on Friday, closing down nearly 5%, marking a potential weekly loss of 7.5%, the largest in over ten years. This decline followed China’s announcement of 34% tariffs on US goods, impacting near-term economic expectations.
Current conditions suggest a likelihood of deterioration, possibly leading to further market losses. A reversal pattern has been completed with a double top on the daily chart, accompanied by multiple bear crosses among moving averages.
Reaching Key Support Levels
A weekly close beneath the Fibonacci support at 21021 may signal more negative trends. A breach at 20257 could expose the psychological level of 20000, while any upticks are expected to remain capped below 21309.
Friday’s aggressive sell-off in the DAX, which sent the index tumbling nearly 5%, has not only dragged the weekly performance into deeply negative territory but also confirmed the broader bearish structure forming over the past several sessions. With the week’s loss now approaching 7.5%, it represents the steepest decline in more than a decade—a movement that strongly reflects the market’s recalibration of risk following fresh tariff measures from Beijing.
For participants active in price discovery through derivatives, particularly in index futures or options, what stands out most is the confirmation of a double-top pattern on the daily timeframe. From a technical perspective, this type of formation typically reflects a controlled yet persistent sell bias—especially when accompanied by reinforcing signals such as ‘bear crosses’ among shorter and intermediate moving averages. It’s not just about shapes on a chart; we’ve seen the mechanical alignment of price trend and technical momentum roll together more decisively.
When analysing support levels, a sustained breakdown below the Fibonacci retracement near 21021 should not be underestimated. If price closes below that threshold with follow-through momentum into early next week, it runs the risk of accelerating the slide. The next key zone comes at 20257. Should that level fail to hold, attention may be drawn to the larger round number just beneath, which has acted as a magnet during previous high-volatility periods. A breach of this zone could draw in heavier institutional flows, particularly among those managing short-dated volatility structures.
Considerations for Current Market Sentiment
Upside responses, while not ruled out, currently appear constrained. Price behaviour has shown rejection near 21309 multiple times, and there’s little in the macro narrative that might trigger a material shift in sentiment to break through this ceiling. We’ve observed that both realised and implied volatility have widened considerably, hinting that market makers are adjusting fast to the increase in directional uncertainty.
In the short term, hedging strategies are undergoing revisions across the board. The rapidity of the move caught out a portion of traders positioned for quiet summer weeks. This means protective puts and volatility plays are being priced more aggressively, especially for the front month. Longer-dated exposures are also reflecting a noticeable risk premium as systematic strategies de-risk into a more fragile equity backdrop.
We’re aligning now towards reduced exposure to reversal trades until clearer structural support confirms. There may be temptation to fade the intensity of selling, but without renewed breadth or evidence of institutional support at lower levels, conviction in long-side structures will remain soft.
It’s also worth factoring that the tariff development isn’t likely to resolve quickly. We’ve noted previous global policy tensions have tended to create overlapping waves of volatility rather than one-off responses. This means sustained uncertainty priced into option skew—a dynamic we’ve seen widening into this correction.
With momentum indicators still not deeply oversold on the weekly, the probability of further technical follow-through remains on the table for now. Whether through a continuation of delta-adjusted positions or less directional calendar strategies, maintaining sustained flexibility should still be the bias for the coming sessions.
