dax daily outlook fri 11 mar 2016 lower limit of the 10100280 risk zone almost met turn neutral for

(Click to enlarge charts) What happened yesterday/earlier The Germany 30 Index (proxy for the DAX futures) has managed to stage the expected push up to […]

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By :  ,  Financial Analyst

DAX (daily)_11 Mar 2016

DAX (1 hour)_11 Mar 2016(Click to enlarge charts)

What happened yesterday/earlier

The Germany 30 Index (proxy for the DAX futures) has managed to stage the expected push up to hit the short-term upside target at 9930 and even the lower limit of the medium-term target of 10100 (printed a high of 9997, a difference of 1%) as per highlighted in our previous short-term daily outlook/strategy published yesterday (click here for a recap).

The run-up in the Index is aided by the European Central Bank (ECB) latest monetary easing measures to combat the risk of deflation. In summary, the key new measures are; (1) cuts in three main policy interest rates where the refinancing rate will be reduced by 5 basis points to 0.25% and a further decrease for the interest rate on the deposit facility by 10 basis points to – 0.40%. (2) The monthly purchases under the asset purchase programme will be expanded to EUR80 billion from EUR60 billion which will include investment grade euro-denominated corporate bonds issued by non-bank corporations.

Interestingly, the Index sold off aggressively after the ECB’s press conference to hit a low of 9395 at the end of the European session which represents a decline of 6% from the 9997 high. This highly volatile plunge is likely to be driven by short-covering in the EURUSD due to over positioning on the short side after the new monetary easing measures are being announced. As EURUSD is considered as a “funding currency” now due to its ultra-low interest rates and a spike up will imply a “risk – off” scenario where equities will tend to face selling pressure via the intermarket correlation “channel”.

Key elements

  • After yesterday’s European low of 9395, the Index has managed to stage a rebound throughout the U.S. session and recorded a daily close above the 9540 medium-term pivotal support which is  defined by the former swing high area of 22 February 2016.
  • In conjunction, the daily RSI oscillator has also tested but managed to hold at the pull-back support of the former descending resistance (in dotted green) and the 50% level. This observation suggests that potential upside momentum in price action has resurfaced after the post ECB induced sell-off.
  • On the negative side, yesterday’s spike up in price action to 9997 and the sharp downside reversal thereafter has occurred at the same spot of “rejection” which confluences with swing high area of 27 January 2016 and the pull-back resistance of the former long-term trendline support from 11 September 2011 low.
  • The other negative element is that price action has broken below the lower boundary of the ascending channel in place since the start of the countertrend rally cycle on 11 February 2016 low of 8696 now turns pull-back resistance at 9700 which is also coincides closely with the 61.8% Fibonacci retracement of yesterday’s steep decline from 9997 high to 9395 low.

Key levels (1 to 3 days)

Resistances: 9700, 9930 & 10100/280

Supports: 9540, 9350 & 9120


Technical elements are mixed now as our expected medium-term lower limit upside target of 10100 has almost been made (yesterday high of 9997) on the Index. In our weekly outlook/strategy, we have highlighted the risk that the second phase countertrend rally may end at the 10100/280 risk zone (click here for a recap). Yesterday’s price action has reinforced this bearish view.

We turn neutral for now due to the above mentioned short-term mixed elements. The key short-term levels to watch will be at 9700 and 9540. A break above 9700 may see a push up to retest the 9930 range top resistance and even 10100/280.

On the other hand, a crack below 9540 is likely to trigger a decline to target the next support at 9350 in the first step.


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