The DAX index rose by more than 1% as German stocks reacted to news that Washington had approved another stimulus for small businesses. The deal sent American and European stocks rallying. T
he Dow Jones and S&P 500 futures rose by more than 1% while in Europe, the CAC and FTSE 100 rose by more than 1.2%.
DAX Index Ignores Falling Oil Prices
The DAX index ignored the falling oil prices partly because Germany is a net importer of oil. Therefore, the country benefits when oil prices decline. As I reported earlier today, the price of international crude oil declined to the lowest level since 1999. There are chances that it can drop more.
Germany imports more than 1.8 million barrels of oil every day, which means that the country will save billions of dollars if the price remains this low.
Still, Germany is exposed to low oil prices in other ways. For example, most of its investors have invested in large companies that are at risk of going burst. In addition, a serious collapse of oil companies in the international markets would have contagion risks for Germany.
Europe dealing with coronavirus
Another reason why the DAX index rose was the fact that more European countries are reopening. Last week, Germany announced that it would allow some areas of the economy to reopen. These include small businesses and kindergartens. While a complete opening up is still a long way to go, there are chances that the economy will start picking-up. Other European countries like Italy, Spain, and France too have started to ease the existing restrictions.
US stimulus package
The DAX index also rose in reaction to the vote by the US senate to provide more financing to small businesses. The senate voted to approve more than $484 billion in aid to these companies. The bill also included budgets for increasing testing on coronavirus. However, it did not include funding for hard-hit states.
This funding was the second one passed in the past few weeks. The first one provided more than $2.2 trillion in financing for businesses and households. The Fed too has offered a stimulus worth trillions of dollars.
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DAX Index Technical Outlook
On the DAX index daily chart, we see that the index faced significant resistance near the 50-day EMA and the 50% Fibonacci Retracement level. The price has dropped and is slightly above the 38.2% retracement level. With this move, the pair is repeating what it did when it first tested the 38.2% since the price retested the 23.6% retracement level.
Therefore, I expect the upward trend to continue after this pullback. If it does this, I expect the price to move upwards and test the 61.8% retracement level and the 100-day EMA at €11,600.
On the flipside, the index will continue falling if it sustains moves below the 38.2% retracement level of €10,200.
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