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• The DAX index surged to its highest level on record.
• The ECB pointed to interest rate cuts starting in June.
• The Federal Reserve also hopes to start slashing rates in 2024.

The DAX index surged to a record high, continuing a strong rally that has been going on for months. The index, which has the biggest blue-chip companies in Germany, rose to a high of €1,845 on Thursday after the encouraging European Central Bank (ECB) meeting. It has soared by more than 50% from its lowest point during the pandemic.

ECB decision and Fed hints

The most recent catalyst for the German DAX is the recent signals by the Federal Reserve and the ECB. In a statement this week, Jerome Powell, the head of the Fed, said that the bank was confident that it would start cutting rates this year.

He noted that the Fed was confident that the upcoming numbers would show that inflation continued moving downwards. This view was confirmed by other Fed officials who talked this week, confirming that it would slash rates at least three times. 

The reaction to these statements was swift as American and Japanese stocks surged to their all-time highs. Similarly, most cryptocurrencies have continued soaring, with Bitcoin sitting near its record high.

The DAX index also soared after the second ECB decision of the year. As was widely expected, the bank decided to leave interest rates unchanged at a record high of 4.0%. Most importantly, the ECB signalled that it is on track to start cutting rates in June this year.

The ECB needs to cut rates since Europe’s inflation is falling while the bloc has avoided a recession only narrowly. Germany, the biggest economy in the bloc, has continued to contract, with industrial and manufacturing activity struggling.

Most European companies have cited the soaring interest rates and the lack of liquidity as the reason for their weakness. 

Most DAX index constituents have been in the green this year. Rheinmetall, the biggest defence contractor in Germany, has surged by over 52% in 2024 as orders jumped. The other top gainers include SAP, Daimler Trucks, Siemens Energy, and MTU Aero.

On the other hand, RWE AG and Bayer share prices have tumbled by over 20% while Deutsche Post and Zalando are down by over 10%. The other worst-performing DAX index companies are Covestro, Fresenius, and Infineon.

DAX index forecast

DAX chart by TradingView

I delivered an upbeat forecast for the German DAX in my last article. This view was correct as the blue-chip index has continued surging. It flipped the important resistance point at €17,000 on February 14th. This was a crucial price since it was the highest point in 2023. 

The index has continued rising as it moved above all moving averages. Further, the Average Directional Index (ADX) has moved to almost 50, signalling that the trend is strengthening. 

Other oscillators like the RSI and the Stochastic have all pointed upwards. Therefore, the outlook for the index is bullish, with the immediate target being the psychological point at €18,000.

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