DAX Index Pulls Back – But Path to ~€13,340 Remains
The DAX has turned lower after making gains earlier today. The blue-chip index is down by 0.20% and is trading at €13,030, which is a few points below the intraday high of €13,092.
The biggest catalyst for the DAX index underperformance was the rising number of Covid-19 cases in Germany. Yesterday, the German government confirmed more than 4,000 new cases for the second consecutive day. That brought the total number of cases to more than 316,000 and the number of deaths to 9,545. It was also the highest number since April 11.
As a result, Germany and other European countries have started implementing some travel restrictions, which could affect the region’s recovery. This could have negative impacts on the companies in the DAX.
The DAX is also struggling because of a new proposal by France to increase taxes on vehicles. The government has proposed hefty taxes on some of the leading brands. Some of the cars that will be impacted are Porsche, Ferrari, and Rolls Royce. As such, these laws will affect some companies in the DAX index like Volkswagen, BMW, and Daimler.
In addition to these, the DAX is falling because of the overall stronger euro. The euro has jumped by 0.35% against the US dollar. A strong euro is usually negative for companies in the DAX index because they all report their earnings in euros. Also, most of them sell most of their products abroad.
Most companies in the DAX are in the red today. The only firms whose shares are rising are Henkel, Infineon, Bayer, and Adidas that are all up by almost 0.80%. On the other hand, the worst performing stocks are Continental, Deutsche Telekom, SAP, and Munich Re.
DAX technical outlook
The daily chart shows that the DAX has been in a strong upward trend in the past few months. It found strong resistance at ~€13,340 in July and then fell to a low of ~€12,338 on September 25. It is also slightly above the 25-day and 50-day exponential moving averages. Also, it is forming an ascending triangle pattern.
Therefore, even with the decline today, I suspect that the index will continue rising as bulls aim for the previous resistance at €13340. On the flip side, a move below €12,338 will invalidate this trend. This price is at the intersection of the ascending trendline and the lowest level in September.