Market Analysis: China stimulus pushes DAX 40 higher, XAU/USD keeps climbing

It seems like markets are placing a lot of trust on China. President Xi Jinping's announcement on Thursday amplified the monetary policy stimulus unveiled by the central bank earlier this week. And markets reacted positively, not only in Asia, but also in Europe. Luxury and automotive stocks were the biggest beneficiaries, driving the DAX 40 and EU STOXX 600 to new highs. A few days ago, it seemed like the measures were a little bit too late, but markets are telling a different story today. 

The stronger momentum saw the DAX 40 rose 1.9% on Thursday managing to break away from the 19,000 level which had been acting as a psychological barrier for the past few weeks. The index remains flat at the open on Friday as investors attempt to justify further upside potential, but the fact that Thursday’s gains remain intact suggests that they remain positive, with an upside bias. The RSI is nearing the overbought level but still has some room to go, suggesting there could be some further follow-through.

DAX 40 daily chart

Past performance is not a reliable indicator of future results.

Meanwhile, gold (XAU/USD) continues to see new all-time highs despite markets pricing in a soft landing in the US. The precious metal tends to outperform in periods of uncertainty, and whilst there is still some concern about the outlook of global growth, a recession has been priced out as the base case. Lower rates are expected to keep gold supported but the extent of the recent rallies makes the key driver hard to pinpoint. It seems like a combination of heightened geopolitical risks, lower rates, and weakening economic data is keeping investors interested in the commodity, even if concerns about a recession are no longer as prominent. 

From a technical perspective, XAU/USD has ventures back into overbought territory, which could see some consolidation in the coming days. But even if investors feel like the bullish momentum has gone a bit too far, there isn’t really any real appetite to be a seller in gold, so any attempts at pulling back could be seen as new opportunities for buyers. The upward bias seems safe as long as it remains above its moving averages, with the 20-day and 50-day SMAs currently at $2,568 and $2,498.

XAU/USD daily chart

Past performance is not a reliable indicator of future results.