DAX Rally Spurred by US Stocks and Weak Euro

The German stock index gained 0.62% this morning on the back of a rally in the main U.S. stock indices.

The two-day consecutive rally coincides with a weakening euro, as German stocks benefit from cheaper prices for their exports. The perception of easing ECB monetary policy is taking over.

The view is that the central bank may continue to cut rates in spite of Fed inaction in September. The stock market has been driven by interest rate policy over this year more than data of economic growth.

Tomorrow we get HCOB PMI expectations for July, analysts forecast a small increase over June’s data for the Manufacturing PMI and no change for the Services PMI. The manufacturing index is still below 50, but expectations are for a small increase to 44 from 43.5 las month.

Leading the index today is a surge in SAP stock prices, up 7% at one point this morning. Other stocks that are gaining major traction from the index include:

• Sartorius +6.21%
• Fresenius +3.93%
• Merck +1.65%

Tech stocks are still the major driver in the U.S. market and those stocks led the recent volatility in the broader indices. After yesterday’s rally it seems that investors may have come to terms with the cheaper valuations and a possible Trump victory in the upcoming presidential election.

Technical View

The day chart for the DAX below shows a market about to break out of the Ichimoku cloud. Confirmation of the breakout could send the market to further highs.

However, the market tested the current level of 18,601 (black line) several times in June, and the failure to head higher led to the dip of 17,939 on June 14. If the market can clear 18,601 then the next resistance would be at 18,785 (blue line), which coincides with a previous peak.

To the downside, immediate support is on the top of the cloud at around 18,355, and further support would be on the bottom of the cloud at 18,170. For a confirmation of a bull trend we would need to see the market break above the previous all-time high of 18,913 (red line).