DAX Index Meteoric Rally Faces Its Biggest Test Yet

Summary:
• DAX index was little changed as Angela Merkel started to consider reopening the economy. The index is approaching the 50% Fibonacci Retracement level

The DAX index was little moved as the government started preparing for easing restrictions on movement. In a statement, Leopoldina, said that the country could consider reopening the economy starting with schools this month. Leopoldina is the country’s national academy of sciencies.

In the report, the academy said that the government should start reopening institutions while simultaneously teaching people on hygiene. It also called upon the government to make it compulsory for people to wear masks in public. In addition to the academy, the economy minister of Lower Saxony asked the government to end the restrictions.

The announcement of easing restrictions could happen tomorrow when Angela Merkel chairs a virtual meeting with leaders of the 16 states.

A number of big German companies have announced plans to reopen the economy. Last week, Daimler announced that it would restart its German factories. Other automakers like BMW and Volkswagen have also announced measures to reopen the economies.

Meanwhile, Goldman Sachs released an alarming report saying that the economies of the advanced economies would shrink by 35% this year. This report came a few days after a team of experts at Ifo said that the German economy would drop by 4% this year.

The DAX index is one of the worst-performing indices this year. It has dropped by more than 22% compared to the 15% drop by the S&P 500.

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DAX Technical Analysis

The DAX index was little changed at the current level of €10,740. On the four-hour chart, the price is slightly above the 100-day exponential moving averages and is approaching the 50% Fibonacci Retracement level at €10,880. The Fibonacci has been drawn by connecting the lowest and highest levels this year.

I expect the DAX index to maintain an upward trend if it manages to move past the 50% retracement level. If it achieves this, the index may aim for the 61.8% retracement level of €11,600.

On the flipside, many assets hit a roadblock at the 50% retracement level. Therefore, the index could find some significant resistance around this price.