Premarket: Vulnerable DAX Index Set For A 2% Rally On Stimulus Hopes

FTSE 100
FTSE 100

The Dax Index is set to jump by more than 2% as the global rally in stocks intensifies. The German index will join other global stocks that are rallying today. In Asia-Pacific, the Australian ASX index rose by more than 3.4% while Japan’s Nikkei rose by more than 5.61%. Meanwhile, in China, the Shanghai Composite and the Hang Seng rose by 1.60% and 3.72%.

The current rally in the DAX comes a day after the Fed announced its most aggressive monetary policy ever. In a statement, the bank removed the cap of its asset purchases from $700 billion to “unlimited.” This means that its action this time will be significantly higher than the $4 trillion rescue plan it implemented following the 2008/9 financial crisis.

The DAX index has been among the most vulnerable indices around the world as Europe becomes the new epicentre of the Coronavirus crisis. Indeed, its best-performing stock YTD is Fresenius, which has declined by more than 14%. Its worst-performer has been MTU Aero Engines, which has declined by more than 50%.

Meanwhile, Germany is the country best-positioned to survive the crisis in the long-term. The country has a large budget surplus, which it can unlock to support its businesses. The biggest challenge it faces is that the automobile industry, which is a key component of the economy, could take a longer time to recover.

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DAX Index Technical Analysis

DAX index futures point to a 2.47% jump of the index. If the current level holds, it means that the index will open at €8,956.

Looking at the four-hour chart, we see that the index made a small double bottom pattern yesterday. We also see that the index is struggling to move below the 16th and 19th March bottom of €8,250. Therefore, I expect the index to attempt to retest the Friday’s high of €9,221.

On the flip side, today’s action could be a dead cat bounce, which means that the index may retest the 19th bottom at €8,250.

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