The DAX (DAX) index rose slightly on Thursday as investors assessed this week’s minutes by the Federal Reserve. The index, which tracks the biggest companies in Germany, rose by 0.45% to an intraday high of €13,688. It has risen by about 10% from its lowest level this year.
Concerns about Germany remain
The DAX 40 index has recovered modestly in the past few weeks as investors bought the dip. But the index has underperformed its American peers like the Dow Jones, Nasdaq 100, and S&P 500 which have risen by about 20%.
This performance is based on several reasons. First, the euro has crashed this year and is now nearing parity with the US dollar for the second time this year. A weak euro has had major implications for German companies, especially those that rely heavily on imports. It has also led to higher inflation, which has affected these firms’ margins.
Second, Germany faces major energy challenges as we head towards winter. Russia has already slashed its gas deliveries to the country. Analysts believe that the country could slash supplies to almost zero, which will have major implications.
The European Commission has urged member states to lower their gas consumption. At the same time, Norway has warned her electricity trading partners that the country may be forced to halt electricity exports. The country attributed this to low water levels that have affected its hydropower plants.
Therefore, many DAX index industrial companies are expected to go through major challenges and margin erosion. Firms like Continental, Porsche, Airbus, Volkswagen, and Siemens have become extremely successful because of the cheap gas from Russia.
Third, the DAX 40 index has struggled because of the hawkish European Central Bank (ECB). The bank has hiked rates by 0.50% and there is a likelihood it will continue doing that.
The worst-performing DAX stocks in the past 30 days are firms like Fresenius, HelloFresh, Continental, Covestro, and Bayer. On the other hand, the top performers are companies like Sartorius, RWE, Brenntag, Linde, Daimler, Hemkel, and Deutsche Post.
DAX index forecast
The daily chart shows that the DAX index formed a double-bottom pattern at €12,417 between March and July. In price action analysis, this pattern is usually a bullish sign. Now, the index has bounced back and moved above the 25-day and 50-day moving averages. The two have even made a bullish crossover.
Therefore, the index will likely continue rising as bulls target the next key resistance level at €14,700. This price was the highest level on June 6.
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