DAX Extends Gains On US Stimulus Package Hopes

Dax rallies for second straight session, but can it last?

Article Default

Whilst the US are clearly late to the stimulus party, they certainly know how to make an entrance. European stocks are pointing to a second straight session of gains on Tuesday as traders cheer US Senators finally agreeing a $2 trillion stimulus deal. The deal, expected to be voted on today, will provide economic relief to American taxpayers and businesses hit by the coronavirus pandemic. Unprecedented times call for unprecedented measures. This is set to be the largest congressional bailout in history.

To put some perspective on the size of the deal, at $2 trillion it dwarfs the $800 billion Obama stimulus that passed 5 months after the financial crash – it would appear that some lessons have been learnt. This move is combined with the Fed’s moves of slashing rates to almost 0% and unlimited bond buying, creating a package which is doing some heavy lifting work in the markets.

Stocks indices surged in the previous session on the whiff of an agreement, with the Dax posting 11% gains. The risk on sentiment is boosting stocks again in early trade on Wednesday.  The question is whether the rally can continue?

Is the tide turning?
We still need to see an improvement in coronavirus numbers and a peaking in cases in US before the rally really takes off. Until then we can expect to see relief rally days but also days when the data is just plain scary and the market sells off.  Fast forward 2 months from here and we expect to see some phenomenal buying opportunities.

German sentiment data up next
The focus will now shift to German IFO Survey for March. The sentiment data is not expected to be pretty, as business confidence collapses; the very measures that governments are implementing to protect the public from the killer virus results in demand for goods and services evaporating. The preliminary reading last week showed a big decline to 87.7 from 96, the revised number could show another drop.

Levels to watch
The Dax has jumped 1.8% on the open and is trading at 9910. On the 4 hour chart, it broke above its 50 sma yesterday and has made an attempt on 100 sma at 9971. A move above tis level could see more bulls jump in.
Immediate resistance can be seen at 9971 (100 sma) prior to 9995 (today’s high so far) prior to 10965 (high 11th March).
Support can be seen at 9541 (today’s low) prior to 8870 (50 sma) and 7970 (low 19th March).

Build your confidence risk free

More from Germany 30

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.