DAX Index plunges to post biggest weekly losses since March

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 Oct 31, 2020
  • Eurozone’s GDP rose by 12.7% in the third quarter to easily top the market estimates of 9.4%
  • ECB committee to provide further support to the market with more stimulus if needed
  • DAX Index price fell 8.61% this week to record the biggest weekly decline in over 7 months

DAX Index closed the week 8.61% in the red to record the worst weekly decline since the beginning of March. The number of new Covid-19 cases across Western Europe has been on the rise in the past few weeks, prompting governments to reintroduce lockdown measures. 

Fundamental analysis: GDP rebounds

France and Germany have been forced to reimpose national lockdowns in a bid to curb the spread of new infections. Investors’ concerns are mounting that the businesses will continue to struggle over the winter as governments are likely to focus on public health measures. 

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Eurozone’s GDP rose by 12.7% in the third quarter to easily top the market estimates of 9.4%. This marks a huge swing following a drop of 11.8% in the prior quarter. As such, this is the strongest recovery in history. 

“The euro zone economy came roaring back in the third quarter as lockdowns ended, though a full recovery is still some way off, and a setback now looms in the fourth quarter,” said Claus Vistesen, an economist at macroeconomics research provider Pantheon Macro.

France is one of the countries with the highest bounce rate is ts economy rose more than 18% in the three months to end-September. 

“The massive increase in French GDP in the third quarter is of no comfort to French policymakers or households, who are now contending with a second national lockdown,” said Andrew Kenningham, head Europe economist at Capital Economics.

In the meantime, ECB’s Christine Lagarde pledged her support to member states by saying that the bank is ready to support the market with more stimulus if needed. 

Technical analysis: DAX plunges

DAX Index price fell 8.61% this week to record the biggest weekly decline in over 7 months. This week’s low of 11450 is the lowest the blue-chip index traded since the end of May. 

DAX Index (TradingView)

The index saw its tumble stop at the key horizontal support line at 11440 and therefore prevent more losses. A break of this support would open the door for levels around the 10000 handle. On the upside, the broken confluence of two daily moving averages will now act as resistance above 12000.

Summary

A rapidly increasing number of new infections across the old continent have pushed European equities significantly lower in the worst weekly sell-off since March.

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