As we plough on through into the final few weeks of Q1 2021 we’ve yet to make it out of lockdown but that doesn’t mean there isn’t plenty of action in the markets to keep us busy. Talking to traders this week it seems the big move everyone is either celebrating getting in or regretting missing out on, is the rally in the DAX. So let’s break down what happened and why this was a great trade.

What Caused The Move?

Economic Optimism

The benchmark German stock index saw price breaking above the 14128.78 level resistance which has capped price all year, making it to current highs of around the 14600 level. The big driver behind the almost 5% run up was the blossoming optimism over the eurozone recovery. With vaccinations starting to gather pace traders are starting to focus more and more on the projected reopening of individual countries in the eurozone as we head into Q2. As the biggest economy in the eurozone, Germany is poised to experience the most benefit from this.

Strong Earnings

Recent eurozone data has also been improving with PMI readings surprising to the upside, helping lift sentiment further. The DAX was also lifted firmly this week by a strong set of earnings reports, headlined by record earnings from the Deutsche Post. The company experienced record volume over 2020 as a result of the pandemic with revenues moving up to EUR 66.8 billion. On the back of these results, the company announced it will initiate a more than EUR 1 billion share buyback program.

ECB Holds Policy Unchanged

The final piece to the puzzle this week was the ECB meeting. DAX traders were given a green light when the ECB held its policy unchanged, moving only to bring forward the pace of bond purchases. The move, which should help bring yields down, should also help keep equities supported in the near term, adding further support for the DAX. Looking ahead, the ECB noted that it judges the balance of risks to the eurozone economy to be more balanced now despite some remaining uncertainty. Until such time as the bank starts giving signals regarding scaling away from easing, the DAX looks set to continue higher. Let’s take a look at the technicals.

Technical Views

DAX

Following several attempts at breaking above the 14128.78 level, the DAX finally took off this week with price surging higher on Monday and continuing higher throughout the week. The ascending triangle pattern (rising trend line pushing price up against horizontal resistance) was a sign of building pressure in the market. While price holds above the 14128.76 level, the near term view is for a continuation higher.

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