DAX Index On the Cusp of a Bullish Breakout as the Euro Rally Falters

Summary:

The DAX index seems to be on the cusp of a bullish breakout because of the faltering of the euro rally and the signs of a stimulus package in the USA.

The DAX index is among the best-performing indices in Europe today. The blue-chip index is up by more than 1.50%, outperforming the FTSE 100 and Stoxx 50 index, that have gained by 1.33% and 1.40%, respectively. Also, most companies in the DAX are in the green, except Deutsche Bank, Deutsche Post, and Volkswagen, that are slightly lower.

There are two main reasons why German stocks are rising today. First, the euro is relatively weaker against the dollar today. The currency has dropped by 0.35%, continuing the losses that it made during the American session yesterday.

The euro is weakening because data from Markit showed that the manufacturing PMI took a step back in August. That was in contrast in the United States, where the PMI data by ISM rose sharply during the month. A weaker euro is usually positive for the DAX index because all its constituent companies report their earnings in the currency.

Second, the DAX index is rising because of the likely stimulus deal in the United States. According to Bloomberg, Steve Mnuchin, the treasury, and house speaker, Nancy Pelosi talked yesterday about a new stimulus. While the two sides are significantly apart, there is a possibility that a narrow deal can be made in the next few weeks.

Adidas is the best-performing stock in the DAX index today, up by 4.20%. It is followed by Delivery Hero, Linde, Deutsche Telekom, Covestro, and MTU Aero, which have risen by more than 2%. On the other hand, Deutsche Bank, Deutsche Post, and Volkswagen are in the red today. Other weak performers are BMW, Bayer, and Daimler.

DAX index technical outlook

The daily chart shows that the DAX index is at a critical place today. The index has been in a strong upward trend since March, when it dropped to a low of €7,950. It then reached a high of €13,290 in June this year but then pulled back. Today, the index is so close to retest this resistance level. Also, it has formed an ascending triangle pattern, which is a bullish sign as you can learn in our free trading course.

Therefore, I suspect that bulls are now confident enough, meaning that they will attempt pushing the price above this resistance level. On the flip side, a move below €12,628 will invalidate this trend. This price is at the intersection of the ascending trend line and the lowest level on August 21.