GER 40 index crashes as bank risks stretch to Europe

The German 40 index (DAX) returned to losses as Credit Suisse came to the center of the bank turmoil on Wednesday, with the index plummeting to a three-month low of 14,695.

From a technical perspective, the index could not find enough buyers to overcome the 20-period simple moving average (SMA) on the four-hour chart despite stubbornly testing the line over the past couple of sessions. Consequently, the price plunged below the 14,900 support area, which overlaps with the 38.2% Fibonacci retracement of the 13,694-1,706 upleg, to meet the 50% Fibonacci level of 14,700. This is almost where the price peaked in December. Therefore, another bearish correction lower and below 14,600 could retest the 14,500 constraining zone ahead of the 14,383-14,334 support zone.

The technical signals are endorsing the aforementioned bearish scenario as the RSI and the Stochastic oscillator move southwards again. Yet, the former is approaching its 30 oversold level, while the MACD is still above its red signal line, suggesting that the selling pressures could soon take a breather.

Still, only a bounce above the 14,900-14,938 region could enable recovery mode, shifting the spotlight back to the 20-period SMA at 15,155 and the 23.6% Fibonacci of 15,230. Running higher, the price may re-challenge the flattening 200-period SMA at 15,383 before crawling towards the 15,500 resistance. The ceiling between 15,560 and 15,706 could be the next hurdle.

Summing up, the latest freefall in GER 40 index may generate additional selling pressures unless the price jumps above 14,900. 

About the author

Christina Parthenidou

Christina joined the XM investment research department in May 2017. She holds a master degree in Economics and Business from the Erasmus University Rotterdam with a specialization in International economics. Previously, she earned a bachelor of science in Economics from the University of Cyprus. Apart from foreign exchange markets, her research interests include the impact of International trade on labour markets and product development.