Uncertainty returns to the financial markets due to new coronavirus strains

More than a year has passed since the world’s attention was turned to events unfolding in the Chinese city of Wuhan and the subsequent onset of a global health crisis the likes of which had not been seen in more than a century. However, despite the time that has passed and the efforts made by governments and the general public, this pandemic remains out of control.

Last November, we were filled with hope after the announcement of vaccines from both Pfizer and Moderna and their subsequent regulatory approval. But the problems being experienced in the supply chain and the logistical issues with the vaccines’ mass administration has resulted in the process not taking place as quickly as desired. Therefore, lockdown deadlines continue to lengthen and the future horizon, which had seemed clearer and more positive, is once again generating uncertainty in the markets due to the growing number of cases and the manifestation of several new strains.

This has led to countries such as the United Kingdom returning to lockdown, which has lasted for several weeks already, and other countries, such as France, considering similar lockdown measures after the insufficient results of current restrictions. Germany has extended its current measures until mid-February due to fears of the new strain, even though the number of infections have actually decreased.

Yesterday, heavy riots were witnessed in the Netherlands, with more than 100 people arrested whilst protesting Covid-19 restrictions.

Meanwhile, Joe Biden has reintroduced travel restrictions to the United States for passengers arriving from the European Union and South Africa, causing further setbacks for the aviation industry.

Furthermore, over the weekend, Chinese fighter planes flew over Taiwan’s airspace, in a clear challenge to US foreign policy. This act has prompted the US to mobilise its aircraft carriers in the area and to strengthen its agreement with Japan to maintain control over this important strategic location. This ongoing situation must be kept an eye on, as it could cause further uncertainty in the financial markets.

DAX30 - Technical Analysis 

For the last few weeks, the DAX30 has maintained a clear upward trend, that continued after breaking through the upper band of the green lateral channel which acted as its main resistance during the sideways movement that took place between July and mid-December.

Depicted: Admiral Markets MetaTrader 5 - DAX30 Daily Chart. Date Range: 7 October 2019 - 25 January 2021. Date Captured: 25 January 2021. Past performance is not necessarily an indication of future performance.

This breakout led to the price recording highs above the 14,000 level, supported by its 18-period moving average. But after making the highs on 8 January, the DAX has entered a triangular formation as we can see in its H4 chart.

Depicted: Admiral Markets MetaTrader 5 - DAX30 H4 Chart. Date Range: 6 November 2020 - 25 January 2021. Date Captured: 25 January 2021. Past performance is not necessarily an indication of future performance.

This triangle formation traditionally points to a trend continuation. However, due to increased uncertainty, we cannot rule out the possibility of a downward breakout of the triangle, which could cause the DAX30 to increase its retracement targeting the breadth of the triangle’s channel, as long as the price breaks before reaching the apex of the triangle.

If it finally breaks downwards, the DAX30 must face its 200-period moving average at H4, as this would be its main support level after the break of the triangle’s support line. In any case, provided the DAX30 holds its previous resistance level (green) that we can see in the daily chart, the long term trend would remain bullish.

Price evolution of the last 5 years:

• 2020: 3.6%
• 2019: 25.48%
• 2018: -18.26%
• 2017: 12.51%
• 2016: 6.87%

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