DAX Index continues to surge higher as Germany prepares to relax travel curbs

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on May 27, 2020
Updated: May 28, 2020
  • Germany to allow international travel to 31 countries starting from June 15
  • The government agrees to bail out Lufthansa for €9 billion in exchange for a 20% stake
  • DAX Index hits a 12-week high, eyes key resistance at 12000

DAX Index, Germany’s benchmark stock index, is trading nearly 2% higher today as the markets shift towards a risk-on environment. The price action is now approaching the key resistance around 12000. 

Fundamental analysis: Germany to allow travel from mid-June

Germany is preparing to introduce a new range of measures to relax travel restrictions. The government is aiming to allow travel to 31 European countries (EU member states + the UK, Iceland, Norway, Switzerland and Liechtenstein) from mid-June. 

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The easing would allow Germans to spend holidays abroad as the pressure on Chancellor Merkel increases to lift restrictions quicker. Certain states, such as Baden-Württemberg, have taken unilateral steps to relax restrictions. 

The federal government and regional authorities agreed today to extend social distancing measures until June 29. Initial restrictions on meetings of more than two people have been relaxed to allow up to 10 people, or members of two households, to meet.

In the meantime, the Government has agreed to bail out its flagship air carrier Lufthansa (ETR: LHA) in a deal worth €9 billion. In exchange, the Government will receive a 20% stake in the carrier, which intends to sell at the end of 2023. 

The funds will be taken from the €100 billion COVID-19 fund designed to help struggling companies. The deal is to be approved by Lufthansa’s shareholders and the European Commission, with Ryan Air strongly condemning the aid package calling it a threat to fair competition.  

“The support that we’re preparing here is for a limited period. When the company is fit again, the state will sell its stake and hopefully … with a small profit that puts us into a position to finance the many, many requirements which we have to meet now, not only at this company,” said Germany’s Finance Minister Olaf Scholz at a press conference on Monday.

Technical analysis: DAX hits 12-week high 

DAX Index is on the way to post the third consecutive day of gains on the risk-on market sentiment. Today marks the first time that price action trading above 11700 since the first week of March. 

DAX Index daily chart (TradingView)

DAX has now recovered more than 60% of the coronavirus-related losses. This is a key resistance for the index, given that the 100-DMA is also located here. If broken, the next target for the buyers is 12100, where the 200-DMA trades. 

The zone around 12000 is also where two key moving averages are sitting, making this area absolutely crucial for future price developments.

Summary

DAX Index is trading nearly 2% higher today as it races to finish the third consecutive day in the green. Germany is preparing to ease restrictions on travel, identifying June 15 as a date to allow travel to 31 European countries. 

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