Dax Index
The DAX index is down by more than 0.60% as traders react to the dragging European recovery fund talks. The index is trading at €12,844, which is below last week’s high of €12,966. Similarly, other indices in Europe are in the red today, with the CAC 40, FTSE 100, and Stoxx 50 down by 0.80%, 0.90%, and 0.75% respectively.
The biggest mover in the DAX index today is the disagreements in Europe about the €750 billion fund that was proposed in May this year. As I wrote earlier this morning, the main differences are about the size and structure of the fund.
In its proposal, the European Commission suggested a €750 billion fund that would help the region recover. Most of these funds would be given to all member states depending on how hard they were hit. Southern countries like Italy, Spain, and France would receive most of the funds.
However, a team of countries, commonly known as frugal four have disagreed on the structure of the fund. In the meeting, these countries – Netherlands, Austria, Sweden, and Denmark – proposed a new structure. They suggested grants of about €350 billion and loans worth €350 billion. Highly-indebted countries like Italy and Spain have rejected this proposal.
The DAX index reacted to the news because its constituent companies form a key part in Europe’s economy. For example, companies like Daimler, Volkswagen, and Bayer are among the biggest firms in the region. They would benefit from more funds.
Most companies in the DAX index are in the red today. Automobiles, Daimler, Volkswagen, and BMW are the worst-performing stocks in the index. They are down by 1.80%, 1.45%, and 1.54% respectively. Other big decliners are Bayer, MTU Aero, Muench Rueckvers, and Deutsche Bank, which are all down by more than 1%.
On the other hand, only three firms in the DAX index are in the green today. Infineon shares are up by 0.70% while SAP and Deutsche Boerse are up by 0.15% and 0.05% respectively.
The DAX index is trading at €12,858. On the daily chart, the price is above the 50-day and 100-day exponential moving averages. Also, it is along the ascending trend line, which is shown in green below. This line connects the lowest points in April, June 15, June 29, and July 10. Also, the index is in the fifth wave of the Elliot wave pattern. This means that the price is likely to continue rising as bulls target the previous resistance level at €13,600.
On the flip side, a move below €12,000 will invalidate this trend. This is an important psychological level that is also at the intersection of the ascending trend line and the lowest level on June 29.