dax daily outlook thurs 27 aug potential short term bearish reaction below 10500 supported by eurusd

(Click to enlarge charts)

What happened earlier

The German 30 Index (proxy for the DAX) has continued to surge and hit the lower limit of our expected target at 10280 in today’s early Asian session.

Please click on this link for a recap on our previous daily outlook.

Key elements

• The on-going rally for the German 30 Index  in place since the 9319 low seen on Monday, 24 August 2015 is now right at its risk-zone of 10280/10440 (resistance) (see 1^st  chart).
• This 10280/10440 resistance zone is defined by the pull-back resistance of the medium term descending channel breakout (in purple), the 38.2%/50% Fibonacci retracement of the recent steep down move from 06 August 2015 high @8am to 24 August 2015 low and trendline resistance (in pink) joining the highs since 11 August 2015 @8am (see 1^st & 4^th  charts).
• USDEUR (inverse of EURUSD) and the DAX has a positive 20-day rolling Pearson’s correlation coefficient of 0.89. This correlation analysis suggests that the price movement of DAX is heavily dependent of the movement seen in the EURUSD. For example, if EURUSD moves up, the DAX is likely to see a downside movement (see 3^rd chart).
• Taking into account on the aforementioned element, the daily chart of the EURUSD has shown that the EUR is now at a significant support level of 1.1290 (the pull-back of the Symmetrical Triangle range configuration bullish breakout). In addition, the RSI oscillator remains bullish above its support without any bearish divergence (see 2^nd chart).
• The hourly Stochastic oscillator of the German 30 Index has reached its extreme overbought level which suggests the risk of a pull-back in price action after its recent rally (see 4^th chart).

Key levels (1 to 3 days)

Intermediate resistance: 10280

Pivot (key resistance): 10500

Support: 10130 & 9870

Next resistance: 11100

Conclusion

Technical elements suggest that the Index has reached a risk zone of 10280/10440. As long as the 10500 daily pivotal resistance is not surpassed, the Index is likely to see a potential decline towards 10130 before 9870.

However, a clearance above the 10500 daily pivotal resistance is likely to damage the short-term bearish expectation to see a further squeeze up towards the next resistance at 11100.

Source: Charts are from eSignal & City Index Advantage Trader 

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