- Summary:
- The DAX index has formed a head and shoulders pattern meaning that the price is likely to move lower in the near term after weeks of consolidation
The DAX index is in the green today as investors focus on the improving data from China and hopes that Washington will reach a stimulus deal soon. The index is up by 0.20% and is up for the second straight day. Other indices in Europe are also in the green, with the FTSE 100 up by 0.80% and CAC 40 up by 0.67%. The pan-European Stoxx 50 index is up by 0.45%.
Earlier today, data from China showed that consumer prices rose by 2.7% in July while producer prices declined by -2.4%. The decline was better than the 2.5% that analysts polled by Bloomberg were expecting. It was also better than the previous month’s decline of 3.0%. These numbers added to optimism that the Chinese economy is in a strong path to recovery, which is a good thing for DAX index constituents.
The DAX index is also reacting to optimism that the US will pass a stimulus deal in the near term. During the weekend, Donald Trump signed an executive order, extending the unemployment benefits for the time being. The move was blasted as being unconstitutional by Democrats and some Republicans. Still, most analysts believe that the move was a negotiating tactic as he tries to secure a deal. A stimulus agreement would be positive for the DAX index because most constituent companies make a lot of their money in the US.
Most companies in the DAX index are in the green today. The best-performing is Deutsche Bank, whose shares are up by more than 2.25%. It is followed by Heidelbergcement, MTU Aero, Adidas, and Covestro, whose shares are up by more than 1%. On the other hand, the biggest laggards are Merck, BMW, Beiersdorf, and Linde, whose shares are down by more than 1%.
DAX index outlook
The DAX index is trading at €12,665, which is slightly below last month’s high of €13,305. On the daily chart, the price is above the 50-day and 100-day EMA. The price is also above the ascending trend line that is shown in blue. This line connects the lowest points in April, May, and July. Also, the price is in the same range it was last week. Most importantly, the price is in the right shoulder of the head and shoulder pattern. This means that the index is likely to break out lower
However, a move above €13,000 will invalidate this trend. It will mean that there are more bulls in the market, who will be keen to push the price above last month’s high of €13,300.
DAX index forecast
