The DAX Index jumped to a record high this week as investors remain optimistic that Germany will handle the current trade storm. It also soared as market participants predicted that the US would reach a trade deal with the European Union, one of the biggest US trading partners. It was trading at €23,670 after rising for five consecutive weeks.
Why the DAX Index is surging
The DAX Index, which tracks the biggest German companies, continued its strong rally after the US signaled its willingness to ink trade deals. Donald Trump announced a deal with the United Kingdom last week, removing tariffs on some of the most sensitive goods like cars and steel.
Trump also announced a new truce with China on Monday. After a two-day meeting in Switzerland, the US and China agreed to de-escalate and lower some of the tariffs he implemented. The US slashed tariffs from 145% to 30%, while Beijing agreed to cut the rate from 125% to 10%.
These two agreements provide a roadmap for what to expect with other countries. Analysts anticipate that the US will reduce tariffs on EU goods in the coming weeks considering that the two sides are holding talks.
Such a move will benefit many German companies that do a lot of business in the United States. Porsche, the maker of luxury vehicles, would be one of the top beneficiaries of tariff relief from the US. That’s because the US has become its top market as China and Europe slows. It manufactures all the vehicles it sells in the US in Germany, making them eligible for tariffs.
Other DAX Index companies set to benefit from tariff relief are automakers like Volkswagen, BMW, and Mercedes-Benz Group. Other companies are Adidas, Siemens, BASF, and Bayer.
European Central Bank actions
The DAX Index has also benefited from the actions by the European Central Bank (ECB), which has become one of the most dovish banks in the developed world.
Unlike the Federal Reserve, the DAX has embarked on a rate cutting cycle as it seeks to support the European economy.
It has slashed interest rates seven times, bringing the benchmark rate to 2.25%, much lower than US’s 4.5%. This means that European companies have lower borrowing costs than those in the US.
On top of this, Germany and other European companies have become willing to spend more money on infrastructure and defense. Germany voted to launch a $545 billion fund earlier this year,
These funds are expected to benefit some of the top industrial companies in Germany. Indeed, some of the best-performing DAX Index constituent companies this year are those set to benefit from this spending.
This includes companies like Rheinmetall, Heidelberg Materials, Siemens Energy, and Siemens AG. Other top gainers in the index this year are Commerzbank, Deutsche Bank, Bayer, and Allianz.
DAX Index technical analysis
DAX chart | Source: TradingView
The weekly chart shows that the DAX 40 Index has been in a strong bull run this year as it moved to a record high of €24,000. It has moved above the key resistance level at €23,450, the highest swing on March 17. It invalidated the double-top pattern at €23,450.
The index has remained above the 50-week and 100-week Exponential Moving Averages (EMA), a sign that bulls are in control. Therefore, with no major risks ahead, there is a likelihood that it will keep rising as bulls target the next key resistance level at €25,000. A move below the support at €23,000 will invalidate the bullish DAX Index forecast.
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