dax bullish break above 10650 opens up scope for further potential upside 1828842016

Daily Outlook, Wed 31 August 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) has managed to break above the 10650 minor range top which reinforces our bullish bias for the Index. Please click here for a recap on our previous daily short-term technical outlook/strategy.

We will reiterate again that the current medium-term desynchronised movement between the DAX (even Nikkei 225 due to a weaker JPY) and U.S S&P 500 is largely due to anticipation in monetary policies differences between U.S. and Eurozone. The recent hawkish comments from Fed Chairwoman Yellen, Fischer (Vice Chairman) and Dudley (New York Fed President) has strengthened the case of an imminent policy rate hike where else the ECB and BOJ are still on a quantitative easing mode. In addition, yesterday’s weakness seen in the S&P 500 is further reinforced by Apple (a key component index stock) after a ruling imposed by the EU commission that ordered Apple to pay EUR13bn in taxes due to illegal tax breaks being offered by Ireland.

Today key Germany/Eurozone economic data releases as follow:

• Germany Retail Sales for Jul @0600GMT (0.3% y/y consensus)
• Germany Unemployment Change & Rate for Aug @0755 GMT (-4k & 6.1% consensus)
• Eurozone Core Consumer Price Index for Aug (preliminary) @0900GMT (0.9% y/y consensus)

Key elements

• The Index has continued to evolve above the lower boundary of the medium-term bullish ascending channel in place since 06 July 2016 low now acting as a support at 10550.
• Momentum remains positive as the daily (medium-term) RSI oscillator has staged a rebound for its ascending trendline support and the 50% level. In addition, it still has ample room to manoeuvre to the upside before reaching an extreme overbought level. These observations have indicated that upside momentum remains intact which is supportive of further potential up move in price action.
• The next short-term significant resistance stands at 10870/990 zone which is defined by the medium-term swing high area of 07/30 December 2015 and the 61.8% Fibonacci retracement of the multi-month decline from 12 April 2015 high to 11 February 2016 low.

Key levels (1 to 3 days)

Intermediate support: 10650

Pivot (key support): 10550

Resistances: 10870/990 & 11050/70

Next support: 10380 (medium-term pivot)

Conclusion

Maintain bullish stance with a tightened short-term pivotal support of 10550 for a further potential up move to target the next resistance at 10870/990. In addition, a break above 10990 may see a further rally towards 11050/70 (1.00 Fibonacci projection from 03 August 2016 minor swing low of 10092).

On the other hand, a break below the 10550 short-term pivotal support is likely to negate the bullish tone to see another round of slide to retest the key 10380 medium-term pivotal support.

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