The DAX took a surprising turn last night and jumped heavily after the EU elections took place, with many believing them to be a positive sign for the struggling eurozone. However, many are also concerned about the rise of the far-right, who seem bent on using their voice in the EU parliament. Most analysts agree though, that they will likely have little impact, and are more likely going to reflect their voice back in their home country instead of in the EU parliament -- this is further reinforced by the majority still being pro-euro overall in the parliament.
Germany also recorded consumer confidence in line with forecasts at 8.5 – still quite low, but nevertheless not any worse than last month. Markets will be looking forward now at the upcoming week ahead, and what it brings to the table for the Euro markets. Certainly many are now predicting negative interest rates from the ECB, as deflation becomes a worry for the struggling economy. One thing that is certain is the ECB will be pushed into a corner to act, and negative interest rates would have a positive effect on equity markets.
So the DAX right now is starting to look very attractive to investors globally. The advent of negative interest rates has helped it crack through a ceiling which has so far looked very strong and solid.
It certainly seems that the sky might be the limit here for the DAX.
Technically speaking, it looks like a solid bullish channel for the most part, and there is no reason to see why this should stop in the near term. There had been a period of consolidation as of late, but it looks like this has stopped -- especially with yesterday's breakout -- and we will see further growth in the DAX. The stochastic oscillator is also looking very strong for the pair, with constant momentum looking very bullish.
Despite the technical outlook, my own outlook is very long term. The reasoning behind my future outlook is the distinct possibility of negative interest rates, which would create inflation and heavy borrowing, but also create massive opportunities in the DAX. I believe markets are also becoming more realistic about the opportunities at hand, and we will see further climbs in the DAX.
Overall, should you rush into the DAX? Probably not at this stage, but there is certainly plenty of opportunities that will arise as we get closer to the ECB action on its deflation threats. Despite what Mairo Draghi says, the market thinks it’s sick, ergo, it is sick. It will take action to deal with the market mindset and bring things full circle so they are actually improving, but it will have to happen.