DAX Index Closes Lower As Wirecard AG Loses Moody’s Credit Rating

Summary:
• DAX index closes slightly lower on the comments of Bundesbank president and the Wirecard accounting scandal. Read tomorrow's PMI data preview.

The DAX index closed 0.55% lower, weighed down by the Wirecard AG and a rise in the R-rate above the 2.0 mark. The DAX index closed at just under the 12,243 mark after a slew of negative data from the EU’s top economy, ahead of crucial PMI data tomorrow. 

Top of the news items weighing on investor sentiment remains the Wirecard AG accounting scandal, which continues to grow with regulators now contemplating the arrest of the former CEO and COO of the company. Regulators also believe that the supposed $2billion lodged in trustee accounts in the Philippines are probably non-existent after attempts to trace the funds there met a dead end. The company’s shares have been rated a SELL by several analysts, and Moody has completely revoked Wirecard’s credit rating. 

Further woes for the DAX came from comments of Bundesbank President Jens Weidmann, who provided a dire warning of a “painfully slow” recovery for the Eurozone.

Surprisingly, the DAX index has shown resilience in only encountering mild losses for the day. Germany’s Flash Manufacturing and Services PMI data tomorrow could determine the performance of the DAX index for the week. 

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Outlook for DAX Index

The DAX index’s 4-hour chart indicates that the asset is experiencing a drop off in buying momentum, showcased by lower highs on the chart. The same picture is seen on the daily chart, which could portend more downside for the pair in the absence of upbeat PMI data tomorrow. If this is the scenario, the DAX could sell-off with a downside target of 11995.83 in the crosshairs. However, this target can only be actualized if the DAX index breaks below the 12139.91 support, formed by the lows of the last few days. 11713.07 may also become relevant if there is a significant decline of the DAX index. On the daily chart, this decline has to overcome the 200-SMA dynamic support as well. 

Upbeat PMI data could allow the DAX to stage a recovery, targeting the 12432.83 resistance initially. Further targets to the upside lie at 12625.62 and 12882.68. The extent to which the price attains these targets depends on how well the PMI reports turn out. The markets are expecting a recovery of 41.5 and 41.7 for the German Flash Manufacturing and Services PMI respectively, after both data registered at 32.6 and 39.4 last month, respectively.