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Dax Drop To Be Short Lived?

The Dax has dropped over 1% across the morning session, slipping back from Wednesday’s all-time high, as renewed concerns surrounding the coronavirus outbreak sweep across global markets. 

The latest reports from China show an additional 14,840 cases and 242 deaths confirmed, as China adjusts it diagnostic method. The new statistics have brought a fresh assault on risk appetite; a sharp contrast to yesterday’s optimism that the virus would peak this month. 

Recent macro data from Germany has been dismal, and that was before coronavirus struck. Industrial production plummeted -3.5% month on month in December, the largest decline since the financial crises. Factory orders dropped -2.1% showing that the slump in German manufacturing is in full swing. 

China car sales plummet
Reports that car sales in China fell to fresh lows in January as coronavirus kept buyers away from show rooms will only add to Germany’s woes. China is a key market for German auto manufacturers, fewer sales will be felt in an already challenged industry.
The European Commission has said that the coronavirus is a key downside risk and this could be magnified in exporter nation Germany which counts China as a principal trade partner.

German recession coming?
The German economy was already in a weak place owing to the US – China trade dispute inspired decline in manufacturing. Add into the picture concerns that coronavirus will also have a slowing impact and economists are starting to lower German GDP expectations. A German recession is not a distant possibility. Fourth quarter German GDP data is due for release on Friday.

Weaker Euro
With all the negatives there is a positive. The euro is hovering around the lowest level since 2017 amid growing speculation of ECB stimulus. Weakness in the common currency would offer support to exporter nation Germany.

Levels to watch:
After surging to a record high in the previous session, the Dax is off by 1%. Yet despite the pullback, the chart remains bullish for the Dax, even if the fundamentals aren’t so supportive.
The Dax trade above its 50, 100 and 200 sma on the 4-hour chart. Immediate support can be seen at today’s low of 13577, prior to Monday’s low of 13445. A meaningful break through this level could negate the current bullish trend.
On the upside, yesterday’s high and the fresh all time high of 13758.

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