DAX Hits New All-Time High – Spurred by Dovish ECB Sentiment

German stocks continue to rally after YoY inflation data showed a decline below the 2% target of the central bank.

The DAX has gained 11.2% since its low on August 5, fueled by AI-tech hype and looser monetary policy. Yesterday’s high marked a new ATH, although the close was just short of the previous ATH close.

The Fed has already indicated a cut in interest rates for September. Giving investors near certainty that the ECB will follow suit.

To confirm that perception, inflation data in the major Eurozone economies are also declining. Germany’s YoY inflation fell below 2%, as did YoY inflation for France today, also at 1.9%. The market is now convinced of a cut in September.

More importantly, the market is gaining conviction of back-to-back interest rate cuts with treasury yields showing a 60% possibility of a second cut in October. Economic data has not been at its best with German GDP lagging behind that of its peers, such as France and Italy.

However, the market is bullish on the positive effect of looser monetary policy, a weaker Euro, and greater exports for many of the companies comprising the DAX.

Technical View

The chart above for the DAX shows a market that has rallied into a bullish trend. The last 6 candles have all printed above the cloud as the market reached a new ATH. Today’s candle is hovering at the open of the candle on May 16.

That candle marked the previous ATH at 18,913 (red line), and still remain the ATH for a candle body. The RSI is close to 70, and to see further highs we would need the RSI to remain above this level.

If the RSI turns south from here would experience a major correction. The market would find immediate support at 18,785 (blue line), and further down support would come at 18,601 (black line), which corresponds to a previous ATH.

ABOUT THE AUTHOR See More

Gino Bruno D'Alessio

Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.

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