The German DAX has continued to post steady trend in the past few weeks. Despite the mixed reaction to the German elections in late September, the leading German index managed to hold on to the gains.

After breaching past 12669.0 levels, the German DAX index has hit the target level to the upside as outlined in the previous commentary. With the political risks now taking a backseat, focus will turn to the ECB’s monetary policy meeting due later this month.

ECB’s dovish taper outlook

Last week the markets saw the ECB’s meeting minutes released. Contrary to market expectations, the meeting minutes showed that the European Central Bank officials were hoping to taper its bond purchases at a gradual pace.

The markets posted a strong rally in the initial aftermath of the hawkish speech by ECB president Mario Draghi a few months ago. This speculative rally came about as the markets were pricing in the QE tapering.

However, officials maintained that the pace of tapering will be only gradual. This was consistent with the underlying theme from the ECB which has repeatedly mentioned that it will scale back its QE purchases based on the economic data.

At the October ECB meeting, the markets currently expect the ECB to announce a 20 billion euro tapering plan. This is expected to start from January 2018 and will bring down the ECB’s bond purchases to 40 billion. The tapering marks nearly half of the stimulus program being cut when the ECB initially started with its bond purchases.

Further scope for tapering is likely to come depending on how the Eurozone economy will develop into the second quarter. This means that with the market’s pricing in the taper, the scope for the upside is limited.

Eurozone political risks remain

Despite the German elections maintaining the status quo, the political headwinds have only declined to the backdrop. Just a few weeks ago, the region of Catalonia in Spain held a referendum that was deemed unconstitutional.