DAX index forecast as EU considers additional stimulus

The DAX index bounced back on Wednesday as European and American equities rose. It rose to a high of €13,986, which was about 12% above the lowest level this year. Still, the price is about 15% below its year-to-date high, meaning that it is in a correction zone.

EU stimulus and ECB decision

The DAX index rose sharply on Wednesday as investors predicted that European leaders will implement further stimulus as inflation risks rose. The region’s presidents will hold a meeting on Thursday to deliberate on these measures considering that most companies in the region are struggling.

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Germany is more exposed than other European countries. For one, the country imports over 40% of its gas from Russia. Its automobile industry also relies heavily on platinum and palladium products from the country. Russia is also one of the biggest players in steel and aluminum.

The DAX index will also react to the upcoming interest rate decsion by the European Central Bank. Analysts expect that the ECB will deliver a relatively dovish statement considering that the bloc’s economy has been hit hard by the ongoing crisis in Ukraine.

Still, recent data suggests that the ECB is between a rock and hard place. The unemployment rate has fallen to a record low while inflation is at a record high.

Energy and other commodity prices have surged in the past few weeks while many ships are stuck at sea due to the crisis. 

A closer look at the blue-chip German index shows that only four companies have risen this year. The rest have been in a sharp downward trend, with food delivery companies like Hello Fresh and Delivery Hero crashing by over 50% this year. Besides, their cost of doing business has surged because of the rising fuel prices.

DAX index forecast

The daily chart shows that the German DAX has been in a strong bearish trend in the past few weeks because of the crisis in Europe. As a result, it has moved below the 25-day and 50-day moving averages, signalling that bears are in control.

The DAX bounced back on Wednesday, which can be viewed as a relief rally or a dead cat bounce. Historically, assets in a deep sell-off tends to experience these relief rallies often.

Therefore, there is a likelihood that the DAX will continue its bearish trend as bears target the next key support at €13,000.

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