In a strange turn of events, it would seem that the Euro and DAX have disassociated for the time being. As strange sounding as that is, it stills rings somewhat true. Typically when the Common Currency (EURUSD) starts to appreciate, the German Index (DAX) would feel the pinch and drop lower. Basically, it is because of the higher price of exports that has to be paid making European and specifically German exports rather unattractive.
The Disassociation, that was mentioned earlier, does not seem to be present in the DAX per se but more on the company side, i.e. the constituents of the German index. According to Carsten Brzeski, who is Chief Economists at IGN, “…there are fundamental reasons why the German Industry is not too worried about the strengthening of the euro”.
Last month, July, the German Ifo Business Climate came in at 116.00, the highest it has ever been in 17 years. This has caused some kind of “Euphoria” for the German Companies. Brzeski continues “The euro is still historically low…there’s a pain threshold for the German Industry…it’s still far, far off”.
What Brzeski is mentioning is the 1.3500-level on the euro. That is what is considered the most that the German industry can withstand in terms of appreciation of the euro before starting to cry out in pain. That level has not been seen in 3 years, specifically July 2014, and we are still very far from reaching anywhere near that level.
However, this has not stopped Credit Suisse from promoting its strategists to turn slightly less upbeat on European Equities. While they do support tilting portfolios toward Europe’s stocks, they have pared their “overweight” rating on the region.
When looking at the Technical Side of things, the 12,090 has been acting as a short-term support (1 Hour Chart) where it was able to hold any further decline from the index on two separate occasions and on both, there has been a very powerful bounce. A Break below that level, the index might be able to visit the 12,000 which many consider as the ‘floor’ of the market. Breaking below the floor sends a very negative signal as further downside could creep in and entice sellers.
Currently, the best performers on the DAX are ThyssenKrupp AG (+1.56% at 25.96); Deutsche Lufthansa AG (+0.79% at 19.82); and E.ON AG (+0.75% at 9.3). The worst performers are Henkel AG & Co. KGaA (-3.56% at 15.10); Volkswagen AG (-0.70% at 127.10); Commerzbank AG (-0.54% at 11.055).