DAX Index Attempts At Highs and Looks for Direction at U.S. Stock Market

Summary:

Dax index run at the highs continues as the German stock market sees huge inflows in 2020. If the U.S. stocks continue their bullish trend, Dax will follow.

The stock market is the great performer of the health crisis, and the DAX index is no exception. Despite high unemployment and uncertainty, the funds keep pouring in the stock market.

Massive monetary and fiscal stimulus did help. Unlike the Great Financial Crisis in 2008-2009, this crisis benefited from strong fiscal support. Governments from all over the world stepped up to the challenge and pumped money into private and public companies.

Germany was no different. Fortunate enough to run a large fiscal surplus for many years before the pandemic, Germany had the ability to spend massively. One side effect? Higher DAX index, as inflows in the German stock market reached record levels in 2020.

Biggest DAX Index Inflows Since 2007

2020 brought the stock market frenzy to Germany too. If during the 2008-2009 Great Financial Crisis the German stock market fell to below 4,000 points, this time threatens to break to new all-time highs.

The European Union’s announcement of joint debt sharing was cheered by investors. The news made the Euro, and Euro assets attractive as funds from all over the world diversified their portfolios.

Good morning from #Germany, where savers are putting aside their fears and investing more and more of their savings in stocks. In Q1 2020 alone, Germans put almost €14bn into shares, biggest inflows in stocks since 2007. https://t.co/O1zvo2KgjG via @welt pic.twitter.com/sUmlFz31aQ
— Holger Zschaepitz (@Schuldensuehner) August 24, 2020

As such, the inflows in the German stock market reached the biggest size since 2007 – almost EUR14 billion in Q1 alone. Despite the Wirecard mess (i.e., Wirecard filed for insolvency after it was proved that it forged its financial statements), investors keep their faith in the German stock market.

One explanation – the U.S. stock market. As long as the Nasdaq100 and Dow Jones on the other side of the ocean keeps running at the highs, the DAX index will follow.

DAX Index Technical Analysis

A rising formation towards the end of a bullish trend is not something that gives a trader confidence to go long. However, as we have seen in the U.S. stock market, such patterns often form running triangles – powerful bullish setups. Learn how to trade wedges with our Forex trading course.

Bulls may want to trade a break at new all-time highs. If that is the case, use the previous higher low as stop-loss and set a risk-reward ratio of 1:2 for the trade.

Bears should only trade if the wedge breaks lower. A move below 12,500 may trigger a short with a stop-loss at the wedge’s highest point and a risk-reward ratio of 1:2.