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DAX Index Whipsaws And Strong Euro is Partly to Blame

Dax Index

The DAX index is down by more than 0.40% as sentiment in the market cools. It, and other European indices, like the CAC 40 and Euro Stoxx 50, are also falling as investors take profits after the strong rally yesterday.

German automakers are the worst-performing stocks in the DAX index today. Volkswagen, the biggest auto company in the index, is down by more than 1.92%. It is followed by BMW, which is down by more than 1.56%. Daimler and Continental, an auto supplier have also fallen by more than 1%.

On the other hand, the best performers in the index are RWE, Infineon, Deutsche Wohnen, and Merck, which are up by more than 0.50%.

German stocks are falling because of the uncertainties about new stimulus in the United States. While stocks rallied after a bipartisan $900 billion stimulus proposal, Mitch McConnel submitted a counterproposal of $300 billion. His proposal will most likely be rejected by both the senate and house of representative.

The DAX index is also likely falling because of the relatively stronger euro. Yesterday, the euro managed to rise to 1.2070, the highest it has been in more than two years. A stronger euro tends to be a negative thing for companies in the DAX because of the vast amount of business they do abroad.

Euro index is at a 2018 high

DAX Index Technical Outlook

In my last article on the DAX last week, I mentioned that the index was in a consolidation phase at €13,435 level. This consolidation has continued this week and is possibly because investors are questioning the strength of the rally. Indeed, the relative strength index has remained at the same level in the past few days.

Still, the price seems to be forming either a bullish pennant pattern or a rising wedge. In most cases, a pennant is usually a continuation while a rising wedge tends to be a reversal. Therefore, in the near term, the outlook for the index is neutral. A volume-supported move above €13,435 will mean that bulls have prevailed while a move below €13,000 will lead to more declines.

DAX technical chart

DAX index