DAX Index attempting to break out as ECB prepares to shift focus

Written by: Michael Harris
January 21, 2021
  • The European Central Bank (ECB) is set to make a shift in its approach and discuss new policies
  • Inflation in the eurozone is nearing record lows, additionally pressured by the recent robustness in EUR
  • DAX Index has opened the new year in style by exceeding the 14,000 mark to set a new record high

DAX Index hit new all-time highs this week as buyers are trying to clear near-term hurdles and target 15,000.

Fundamental analysis: New policies?

The European Central Bank (ECB) is set to make a shift in its approach, after launching the 1.85 trillion-euro aid package in December.

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The bank’s Governing Council is likely to take a break now for the time being and discuss new directions for the markets at today’s meeting, as well as the strength of the Euro. 

“A more realistic objective, (rather) than aiming for 2% inflation two or three years ahead, is thus to focus on protecting favourable finance conditions, at the lowest cost possible while allowing a longer period for inflation to converge to target,” said Anatoli Annenkov, a senior European economist at Societe Generale.

Annenkov added the bank thinks the ECB will pause for the near term, while growth expectations are declining due to reintroduction of lockdown measures.

However, some analysts said that this focus on financial conditions may be an ECB’s strategy to keep sovereign yields out of the spotlight, particularly how much the European governments are paying on debts. 

“The ECB is trying to shift the market’s focus from yields to financial conditions,” said Mark Wall, the head economist at Deutsche Bank.

On the other hand, inflation in the eurozone is nearing record lows, additionally pressured by the recent robustness in EUR

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Technical analysis: New highs reached 

DAX Index has opened the new year in style by exceeding the 14,000 mark to set a new record high. A minor pullback is taking place now amid tightening pandemic-related restrictions imposed in Germany. 

DAX Index weekly chart (TradingView)

However, buyers are now preparing to launch a new buying wave as their US counterparts continue to rally higher. In this case, a weekly close above 14,000 paves the way for a push towards 15,300 where the next major target is located. 

Summary

The European Central Bank is likely to pause and change its focus now, following the 1.85 trillion-euro aid package introduced in December.