The euro is extending its rally for the third day after Catalan leader Carles Puigdemont proposed suspending the results of the independence referendum to undertake talks to reach an agreed solution. Meanwhile in Frankfurt, Germans are still waiting for the government formation two weeks after the Bundestag election. A senior Bavarian ally for Chancellor Merkel said that Germany may need to wait until next year for a new coalition as the CDU/CSU, FDP and Greens have deep differences on issues ranging from migration to European Union reform, tax and the environment. Uncertainty from both Catalonia and Germany could worsen and might affect the euro negatively.
The German DAX gapped higher at the beginning of the trading session on Tuesday as German exports surged in August due to strong demand from the eurozone, rising 3.1% from July and 7.2% from the same month in 2016. However, the index pulled back a bit during the day weakened by the strong euro. The DAX found enough support around the 12,920s and is currently trading around the 25-EMA (gray line) at the 12,940s. The German index continues to be one of the leaders of the European Union and is expected to reach the 13,000-handle. The first level of resistance is identified around the 12,985 and if we break above that level, the market should continue higher and ultimately reach the 13,500 on the long run. The Relative Strength Index (RSI) shows a print of 48 which suggests consolidation.
On the data front, German government will present economic growth forecast for 2017 and 2018. According to Reuters, it will raise the growth forecast for 2017 to 2% from 1.5% and for 2018 to 1.9% from 1.6%. Investors’ focus will turn into the FOMC meeting minutes to confirm if the Fed is on track for a December hike which could have a great influence as to where the greenback and the EUR/USD pair goes next.
The best performers on the index are E.ON SE which rose 1.14% to trade at 9.696. Commerzbank AG increased 0.73% to end at 11.66 and Volkswagen AG was up 0.71% to reach 142.35.
The worst performers are BASF SE which fell 0.52% to trade at 89.53. Vonovia SE declined 0.37% to end at 36.175 and Adidas AG declined by 0.26% ending at 194.50.