Disappointing ECB pushes the DAX30 back below 11,000 – further losses to come?
Source: Economic Events May 4, 2020 - Admiral Markets' Forex Calendar
After German DAX30 saw a short stint back above 11,000 points, it saw a sharp decline at the end of the last week of trading.
In fact, the bullish performance surprised us, given the US GDP data indicating shrinkage by an annualized 4.8% in Q1, ending the longest period of expansion in the country's history, with the steepest pace of contraction in GDP since Q4/2008 and much worse than market consensus of a 4.0% slump.
The squeeze back above 11,000 points was driven mainly by rumours that Gilead Sciences is approaching early results of a coronavirus drug trial which has shown improvement with a shorter Remdesivir treatment, fuelling hopes that we might be headed towards an effective drug treatment against Covid-19.
Still, the DAX30 closed the week significantly below 11,000 points after the ECB disappointed on Thursday by announcing that it will keep the size of its €750 billion "PEPP" (Pandemic Emergency Purchase Program) and "only" make available, once again, cheaper liquidity for European banks as part of its TLTROIII program.
In our opinion, a rough translation of these ECB measures to promise cheaper and more liquidity for European banks, but keeping PEPP untouched for now could be: "As long as no European unity in regards to a massive economic package to counter the economic Corona-lockdown induced downturn is delivered, we are not increasing the size of our PEPP package."
That in mind, it leaves room on the downside for the DAX30 CFD and even though we stay short-term and technically stay positive as long as the German index trades above 10,200 points, a sustainable drop back below 10,800 could trigger further weakness in the days to come:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Hourly chart (between April 9, 2020, to May 1, 2020). Accessed: May 1, 2020, at 10:00pm GMT
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between January 16, 2019, to May 1, 2020). Accessed: May 1, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015, the value of the DAX30 CFD increased by 9.56%, in 2016, it increased by 6.87%, in 2017, it increased by 12.51%, in 2018, it fell by 18.26%, in 2019, it increased by 26.44% meaning that after five years, it was up by 34.2%.
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