DAX Gains Nearly 10% on Fed and Germany’s Stimulus Packages

DAX Gains Nearly 10% on Fed and Germany’s Stimulus Packages
  • Germany unveiled a stimulus package worth more than 750 billion euros
  • Federal Reserve committed to unlimited purchase of government-backed bonds
  • DAX trades almost 9% higher today as stocks stage a rebound globally

DAX, Germany’s blue chip stock market index, has gained more than 9% today in the best day since the beginning of the coronavirus crisis. A limitless purchase of government-backed bonds initiated yesterday by the US Federal Reserve, as well as Germany’s stimulus package worth more than 750 billion euros has sparked the rally in equities across the globe today.

Fundamental analysis: Germany announces massive stimulus package

Yesterday, the Federal Reserve announced a bond-buying package with no limits to support the embattled economy and financial markets. Hence, the Fed adopted a “whatever it takes” approach to facing the biggest economic and financial shock in decades.

“You want to make sure that at the end of the period where the economy is affected by this crisis and shut down, that you haven’t left everyone in such a bad place that you can’t recover quickly,” said Nellie Liang, a senior fellow at the Brookings Institution and a former director of financial stability for the Fed.

Similarly, Germany unveiled an aid package worth more than 750 billion euros to support the economy and businesses. Despite the massive size of the stimulus package, Berlin insists this is just the beginning.

“The federal government is clear that we view this package of measures as just the first step,” German Economy Minister Peter Altmaier said.

“We know that the time of implementation is critical. We want to make sure help arrives as quickly as possible”.

Moreover, the influential Finance Minister Olaf Scholz added that other measures will be unveiled after businesses are open again.

“As soon as pubs, cinemas and shops can open again, we will take targeted measures to revive the economy,” Scholz said.

Technical analysis: Testing key resistance

DAX has gained more nearly 10% as global equities recover from the recent bloodbath. As seen in the chart below, the price action tagged the crucial support above the 8,000 mark before rebounding higher.

DAX weekly chart (TradingView)

As a result, the bulls have taken the price action higher today to test the initial resistance near the 9,300 mark. A clean close above this level would open the door for a test of the ascending trend line (the red line) around 9,600.

The key short-term resistance remains at 10,300.

Summary

The DAX Index has joined the rest of the stock market in rebounding higher today. A massive stimulus package presented by the German government yesterday, as well as Fed’s limitless bond-buying, have provided the desired effect in the short-term.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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