DAX Index gained 11% last week as ECB goes “never say never” on future buying of shares

The DAX Index has recorded one of the best weeks in recent memory after it gained nearly 11% last week. In the meantime, an ECB senior official has refused to rule out potential buying of shares instead of corporate and government bonds in the future. 

Fundamental analysis: “Never say never” says ECB

On Thursday, the ECB announced a bigger-than-expected expansion of its stimulus package, which helped the DAX Index hit the multi-month highs. 

“Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year,” the bank said in a statement. 

In total, the stimulus package will be increased by €600 billion to a total of €1.35 trillion.

“The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions”. When it comes to asset classes, central banks focus its purchases on bonds.

In the past, the ECB never discussed the option of purchasing shares of European companies, instead of bonds. However, its officials are also not ruling it out. 

“Never say never. If the need is there, this discussion will definitely have to take place. But currently that discussion does not exist,” the ECB Governing Council member Robert Holzmann said.

Technical analysis: DAX Index hits new highs 

DAX Index is currently enjoying one of the best periods in the last 10 years. After the index printed a 6-year low in March, it has managed to recover around 80% of the losses and trade near the 13000 handle again.

Not even a confluence of resistance could stop the buyers around the 12000 mark as the trend is simply too strong at this point. Instead of slowing down, the ECB’s decision to further expand its asset purchase program has provided further support to the buyers to print the highest levels since February. 

The Index is now likely to slow down above 13000 due to a confluence of strong resistance levels, starting from 13200. On the downside, two moving averages on the weekly chart will now transform into support.

Summary

DAX Index has continued to move higher in the past week, following the decision from the ECB to further expand its asset purchase program by €600 billion to a total of €1.35 trillion. In the meantime, senior ECB officials have refused to rule out potential purchases of shares, instead of bonds in the future.