dax further potential upside after bullish breakout 1839712016

Short-term Technical Outlook (Thurs, 08 Dec 2016)

(Click to enlarge charts)

What happened earlier/yesterday

As per highlighted by our weekly technical outlook published on Monday, 05 December 2016 (click here for a recap), the bulls need to clear the “stubborn” resistance at 10810 (3-months plus of range bound action since August 2016) for the Germany 30 Index (proxy for the DAX futures). Yesterday’s price action has confirmed that the bulls are now in control at least in the short to medium-term.

Since the outcome of the recent Italian referendum on constitution reforms held on 05 December 2016, the German 30 Index has rallied by 7% which has shrugged off the potential collapse of the Italian banking sector that can trigger a European banking crisis.  Also the “No” vote casted by the Italians and the recent Brexit vote have cemented the rise of populism in Europe that can destroy Euro zone integration which may eventually lead to a potential collapse of the European Union.

However, the above mentioned negatives are not being seen in the latest price action of major European benchmark stock indices. But we have to respect these price actions as technicals are now gaining a foothold over fundamentals and we turn bullish in the short to medium-term on the Germany 30 Index.

Key elements

• Since this Monday, 05 December 2016 low of 10355, the Index has evolved into a short-term bullish ascending channel with its lower boundary (support) now at 10920.
• The lower boundary of the short-term ascending channel also confluences closely with the 23.6% Fibonacci retracement of the current up move from Monday, 05 December low of 10355 to yesterday’s U.S. session high of 11087.
• The next resistances stand at 11190 follow by 11280/430 (upper boundary of the ascending channel & Fibonacci projection).
• Short-term key support will be at 10810 which is the former multi-month range resistance from 15 August 2016.

Key levels (1 to 3 days)

Intermediate support: 10920

Pivot (key support): 10810

Resistances: 11190 & 11280/430

Next support: 10520

Today’s key European economic event

• ECB monetary policy decision @1245GMT  & statement/press conference @1330 GMT – consensus is expecting no change in the three policy interest rates (refinancing at 0%, margin lending at 0.25% & deposit at -0.40%). In addition, ECB is expected to extend its current QE programme (EUR80bn assets per month) due in March 2017 to another six months to September 2016 at the same quantum. The important thing to note during the press conference is whether there will be any changes in the composition of the assets in the extended QE programme. If there is an increase in the share of Italian sovereign bonds (to put a temporary ceiling on Italian’s sovereign yield) which can be used as a tool to “smooth” the fear of a Europe wide banking crisis contagion that can be triggered by Italian’s troubled banks. Therefore, European benchmark stock indices such as the DAX is likely to see further upside potential as risk aversion continues to fade.

Conclusion

A short to medium-term bullish trend has to form in the Index. Any potential minor pull-back is likely to be held by the 10920 ascending channel support before another upleg materialises to target the next resistances at 11190 follow by 11280/430 next.

However, failure to hold above the 10810 pivotal support is likely to damage the bullish trend to see another round of choppy decline towards the next support at 10520 (the recent bullish breakout is considered as a failure).

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