(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 […]
(Click to enlarge charts)
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”.
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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