DAX Index Rally Falters as More Details of EU Recovery Fund Emerge

Dax Index
Dax Index

The DAX index is little changed a day after it jumped by almost two per cent. The index is trading at €13,169, which is slightly below yesterday’s high of €13,250. Other indices in Europe are also in the red, with the FTSE 100, Stoxx 50, and IBEX falling by 0.18%, 0.30%, and 0.20%, respectively.

DAX index wavers as details of the EU package emerges

The DAX index is wavering as more details of the EU funding package continue to emerge. The €750 billion fund will entail €390 billion in form of grants and €350 billion in form of loans. It also included a seven-year €1.07 trillion budget. Perhaps, investors are worried that these funds will not be availed right away.

According to Danske Bank, the European Commission will raise these funds by issuing 3-30-year bonds on behalf of the EU. 70% of these grants will be committed in 2021 and 2022 while the rest will be provided in 2023.

Also, the bank anticipates that the package will be ratified in the third quarter of this year. The bank said:

“Hence, we expect most of the fiscal boost from the recovery fund to materialize in H1 21, supporting particularly public investments at a time when national fiscal initiatives might otherwise be scaled back.”

Deutsche Bank leads the DAX

Deutsche Bank shares are the best-performing in the DAX index today. The shares are up by more than 2% as investors react to positive comments from the bank. In a statement, it said that its corporate clients were repaying loans taken to cope with the pandemic quicker than expected.

As a result, this has seen its closely-watched common equity ratio rising to 13.3%, which is higher than the 12.4 that analysts were expecting. This announcement came a week before the bank is set to publish its financial results. Also, the bank said that it expects that its second quarter results will be better than what analysts are expecting.

Other top movers in the DAX

Other companies making moves in the DAX index are BASF, Infineon, Fresenius, and Adidas are up by more than 1%. Other firms in the green are Siemens, Allianz, and Covestro. On the other hand, the top laggards are Henkel, E. ON, Merck, and Deutsche Wohnen, which are lower than 1%.

DAX index technical analysis

The DAX index is trading at €13,169. On the daily chart, the price is above the 50-day and 100-day exponential moving averages. The price is also above the important 78.6% Fibonacci retracement level.

This retracement connected the highest and lowest levels this year. Also, the index is in the fifth wave of Elliot Wave. Therefore, the price is likely to continue rallying as bulls target this year’s high of €13,867.

On the flip side, a move below €12,626 will invalidate this trend. This price is along the 78.6% retracement.

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