DAX Index surges higher as risk appetite sours

DAX Index surges higher as risk appetite sours

  • Bundesbank says that German economy contracted 4.6% in April
  • The central bank expects the economic activity to pick up later in Q2, praises Government’s efforts
  • DAX Index trades 4% higher today on the reopening of economies worldwide

DAX Index is trading 4% higher today on improving risk appetite as the economies worldwide step up the reopening process. As expected, Germany is warning of a significant slowdown in the economic activity for the second quarter.

Fundamental analysis: Bundesbank expects the momentum to pick up

In its regular monthly report, Germany’s Bundesbank said that it expects the national economic activity in the second quarter to come in significantly below that of Q1 as there is still “a very high level of uncertainty about future economic developments”. Accordingly, the German economy contracted 4.6% in April.

The business activity is expected to pick up later in the second quarter (June).

“There is currently much to suggest that overall economic developments will move up again in the course of the second quarter as a result of the easing measures and a recovery is under way,”  it is said in the report

“This depends, among other things, on the further course of the global infection process and the containment measures taken, but also on changes in consumer and investment behaviour that are influenced by this.

The central bank also praised activities undertaken by the German authorities, after the Government introduced a 1.8 trillion EUR stimulus package. As a result, the bank has detected signs of economic recovery.

According to Bundesbank, some 6 million workers received state wage support during the month of April. The central expects the recovery in the construction sector to be more robust than the rest of the economy. 

Technical analysis: Dax Index surges higher

After printing the 1-month low near 10,150 on Friday, the Dax Index has screamed 4% higher today to trade just below the 11,000 mark. A daily close above 10,800 is likely to provide the buyers with a further impetus for the rest of the week. 

DAX Index daily chart (TradingView)

The next resistance is located at 11,300 in the context of a horizontal line that acted as an important support/resistance in the past. This level is likely to be the next target for the bulls this week. On the downside, the mini descending trend line near 10,800 will change its position and become support if the daily close above this level is secured today. 

Summary

The Dax Index has jumped 4% higher today on improving risk appetite as the economies ramp up with the reopening plans. Bundesbank said that the national economy contracted 4.6% in April, while it expects the economic activity to pick up in the late stages of the second quarter. 

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.

Investing is speculative. When investing your capital is at risk. This site is not intended for use in jurisdictions in which the trading or investments described are prohibited and should only be used by such persons and in such ways as are legally permitted. Your investment may not qualify for investor protection in your country or state of residence, so please conduct your own due diligence. This website is free for you to use but we may receive commission from the companies we feature on this site. Click here for more information.