The DAX index, together with other European bourses, rose today as the market reacted to a new deal to merge O2 and Virgin Media in a deal valued at more than 31 billion pounds. The combination will transform the British telecoms market by combining the second biggest broadband network with the biggest mobile network.
German automobile rise
The biggest gainer in the DAX index today was Daimler, the maker of Mercedes Brenz, whose stock rose by more than 1.65%. It was followed by Continental AG and Volkswagen, whose shares rose by more than 1%. BMW was the only automobile-related company in the red, with its stock price falling by more than 50 basis points.
The jump in automobile shares comes in a week that the companies warned about their profitability. In a statement, Volkswagen lamented that parts suppliers had hiked prices because they were operating below capacity. In another statement, BMW warned that the industry would take years to recover.
Additionally, the share prices rose two days after auto executives met with Angela Merkel and agreed to form a committee to deliberate on a rescue package. These executives are advocating for a cash-for-skunks policy that encourages people to buy new cars. They are also hoping for a rescue package such as the one recently offered to American automakers as part of the giant $2.2 trillion rescue package.
Meanwhile, the market also focused on Wirecard, the troubled digital payments company. The shares dropped by more than 1.50% as more shareholders continued to speak against the company. This followed a forensic report carried out by KPMG about its business dealings. Other weak performers in the DAX index were Allianz, MTU Aero, and Fresenius.
ECB and German court battle
At the same time, investors are paying attention to the decision by a German court that ruled against QE this week. While the court said that QE was legal, it asked the German government to investigate more about how it is being implemented. In a statement, a defiant ECB said that it would continue implementing QE because a European court said that it was legal.
Also, the market is thinking about a trade war between the US and China. According to the Financial Times, the Trump administration was considering options against China. Some of the options being considered are curbing supply chains and limiting investments.
Download our Q2 Market Global Market Outlook
DAX index technical forecast
On the daily chart, we see that the DAX index has been on an upward trend since it bottomed in March. During this uptrend, the index met significant resistance at the 23.6%, 38.2%, and 50% retracement levels. At the current price, the index is attempting to move above the 50-day EMA and retest the 50% retracement level at 11,050. Therefore, I expect the uptrend to continue especially if it moves past the 50-day EMA.
On the flip side, I will consider a move below 10,190 as the invalidation point of this thesis. This price is slightly below the 38.2% retracement level and is also a strong support. A move below this point will mean that there are more sellers in the market.