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DAX Outlook: EC Proposes Ambitious Recovery Package, DAX Soars

DAX Outlook: EC Proposes Ambitious Recovery Package, DAX Soars

2020-05-27 11:00:00
Justin McQueen, Analyst
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DAX Price Analysis & News

  • DAX Soars on Risk Rally Following EC Announcement
  • Frugal Four Support is Key
  • DAX Bulls Persist

Risk on rally gains further traction across Europe after the reports noted that the European Commission will propose a recovery fund at EUR 750bln, with grants making up EUR 500bln, alongside EUR 250bln of loans. Among the key beneficiaries of this announcement have been BTPs, with the Bund-BTP spread tightening below 200bps as fragmentation risks fade. Italy has reportedly been allocated EUR 82bln in grants and EUR 91bln, which is sizeable for one of Europe’s weak links.

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Frugal Four Support is Key

The risk, however, is that this is a proposal and thus will need approval by all 27 EU governments. That said, an important factor to watch out for is the initial reaction from Austria, Denmark, the Netherlands and, Sweden (known as the Frugal Four), given that they have signalled their opposition to a more grant focused package.

Germany 30 BULLISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 0% 7% 4%
Weekly 5% 12% 9%
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DAX Bulls Persist

Positive momentum shows little signs of easing for the DAX as cyclical stocks outperform defensives. As such, the DAX has now closed the gap from the beginning of March with the index breaking above 61.8% fib at 11592. However, for a push towards 12000, eyes will be on for frugal four support of the proposal, while opposition to the proposal raises the risk of a pullback to 11000.

DAX Price Chart: Daily Time Frame

DAX Outlook: EC Proposes Ambitious Recovery Package, DAX Soars

Source: DailyFX

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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