Chart of the day Positive elements sighted in DAX

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By :  ,  Financial Analyst

Short-term technical outlook on DAX (Thurs, 07 Sep 2017)




What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) had rallied and erased off all its initial losses seen in the first half of this week caused by the jitters from the latest round of North Korean missile test.

The Index had rallied by 2.1% from its recent minor swing low of 12041 seen on 06 September 2017 to yesterday (06 Sep) U.S. session high of 12301 before traded sideways as the market waits for the monetary policy decision from the European Central Bank (ECB) due ater at 1145GMT. Current price action of the Index is now hovering just below the key 12340 medium-term resistance as per highlighted in our latest weekly technical outlook report, click here for a recap.

The key highlight will be the accompany monetary policy statement and press conference at 1230GMT as in the past one month, several key ECB officials have started to weight the effects of a surging EUR/USD on meeting its inflation target and the potential negative impact on short-term growth expectations via slower exports growth. In the past meeting, ECB central banker, Mario Draghi had hinted that ECB will start to announce plans for a wind down on its current QE programme this autumn. Thus, expectations have started to build up that there is a possibility that ECB will use today’s meeting to announce its QE exit plans. But ECB policy makers now face a dilemma with the EUR/USD that is hovering near a two year high where such an announcement can trigger a spike in the EUR/USD to go above 1.2000 that will have a negative impact on short-term exports growth.

Now, let’s us review the Index from a technical analysis perspective.

Key elements

  • Yesterday’s price action of the Index has staged a bullish breakout of a former medium-term descending channel resistance in place since its current all-time level seen on 20 June 2017 (see 4 hour chart).
  • The key short-term support now rests at 12180/150 which is defined by the former minor swing high areas of 01/05 September 2017, the pull-back support of the aforementioned former descending channel resistance and 61.8% Fibonacci retracement of yesterday’s rally (see 1 hour chart).
  • The next resistances after 12340 stands at 12550 and 12670 which is defined by the 61.8% Fibonacci retracement of the decline from 20 June 2017 high to 29 August 2017 low and the swing high area of 13/17 July 2017 (see 4 hour chart).
  • Based on intermarket analysis, the EUR/USD has a high indirect correlation with the DAX since June 2017 (if EUR/USD goes up, the DAX is likely to face downside pressure and vice versa). Based on its latest short-term technical elements, the EUR/USD has started to evolve into an impending bearish “Flag” configuration since 31 August 2017 low. This chart pattern indicates that the EUR/USD may resume its prior short-term decline seen from 29 August 2017 to 31 August 2017 low through the bearish break of 1.1880 (the lower limit of the bearish “Flag”). If such a scenario materialises in EUR/USD, the DAX is likely to see a further potential up move (see last chart).

Key Levels (1 to 3 days)

Intermediate support: 12235

Pivot (key support): 12180/150

Resistances: 12340 & 12550

Next supports: 12040 & 11800

Conclusion

More positive elements have started to emerge for the Germany 30 Index. As long as the 12180/150 key short-term pivotal support holds and a break above 12340 may open up scope for a further up move to target the next resistance at 12550 in the first step.

On the other hand, failure to hold above 12180/150 is likely to negate the current bullish tone to open up scope for a further slide to test the next support at 12040 and even 11800 next (key medium-term range support).

Charts are from City Index Advantage TraderPro & eSignal

Disclaimer

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Related tags: Germany 40 Indices

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