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DAX 30 Index Rebound at Risk on Merkel's Warning, Covid-19 Second Wave

DAX 30 Index Rebound at Risk on Merkel's Warning, Covid-19 Second Wave

2020-09-29 07:00:00
Daniel Moss, Analyst
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DAX 30 Index, Covid-19 Second Wave, German Chancellor Angela Merkel – Talking Points:

  • Equity markets moved marginally higher during Asia-Pacific trade as investors shift focus to the first presidential debate of the 2020 US elections.
  • German Chancellor’s warning of more than 19,000 Covid-19 infections a day could weigh on regional risk-sensitive assets.
  • DAX 30 index struggling to overcome key chart resistance. Is the German benchmark’s recovery running out of steam?

Asia-Pacific Recap

The trade-sensitive Australian Dollar continued to trek higher during Asia-Pacific trade as fiscal stimulus hopes hampered the haven-associated US Dollar.

S&P 500 futures pushed marginally higher and Australia’s benchmark ASX 200 index finished the session unchanged. Gold and silver slipped despite yields on US 10-year Treasuring nudging back up to 66 basis points.

Looking ahead, the US consumer confidence release for September headlines a rather light economic docket as attention shifts to the first presidential debate of the 2020 election.

DAX 30 Index Rebound at Risk on Merkel's Warning, Covid-19 Second Wave

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Covid-19 Second Wave Threatens to Upend DAX 30 Index’s Rebound

As mentioned in previous reports, Germany’s benchmark DAX 30 index is at risk of reversing lower, as a ‘second wave’ of Covid-19 infections threatens to upend the nation’s nascent economic recovery.

With German Chancellor Angela Merkel warning that there could be more than 19,000 cases a day by the end of the year if the current surge in cases continues unabated, it would seem as though the reimposition of economically-devastating lockdown measures is almost a certainty.

However, despite the marked increase in infections Germany has yet to tighten restrictions, with the University of Oxford’s Government Response Stringency Index notably plateauing since declining substantially at the beginning of the month, while the 7-day moving average of Covid-19 infections climbs towards 2,000.

DAX 30 Index Rebound at Risk on Merkel's Warning, Covid-19 Second Wave

Nevertheless, the tightening of coronavirus-imposed restrictions looks likely in the coming weeks given Merkel’s statement that “the development of infection numbers is of great concern [and] we’re seeing volatile increases in the number of infections locally and regionally, and they need to be brought under control”.

With that in mind, the DAX 30’s recent rebound could prove short-lived if deteriorating health outcomes leads to the reimposition of growth-hampering restrictions.

DAX 30 Index Rebound at Risk on Merkel's Warning, Covid-19 Second Wave

Source – Worldometer

DAX 30 Index Daily Chart – Ascending Channel Support Nurturing Recovery

The formation of a bullish Hammer candle above the 100-day moving average (12518.8) and Ascending Channel support suggests that Germany’s benchmark DAX 30 index may continue to claw back lost ground, after falling over 8% from the post-crisis high set on September 3 (13464.2).

However, with the RSI struggling to break above its neutral midpoint and the trend-defining 50-DMA (12908.3.4) seemingly capping bullish momentum, an extended push to the downside is not out of the question.

Therefore, short-term price action may prove pivotal in defining the DAX 30’s outlook, with a daily close above the 21-DMA (12981.4) needed to validate bullish potential and bring the February high (13828.8) into focus.

Conversely, a daily close back below the September 4 swing-low (12746) may inspire a more sustained correction and possibly lead price back towards support at the sentiment-defining 200-DMA (12171.4).

DAX 30 Index Rebound at Risk on Merkel's Warning, Covid-19 Second Wave

DAX 30 index daily chart created using TradingView

Germany 30 BULLISH
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Change in Longs Shorts OI
Daily -7% 10% 4%
Weekly -10% 18% 7%
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-- Written by Daniel Moss, Analyst for DailyFX

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