dax maintain bullish bias above 1026010180 support post boj 1823632016

Daily Outlook, Fri 29 July 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) has traded sideways after a printed a high of 10388 and held above the short-term intermediate support of 10260.

Please click on this link for a recap on our previous daily short-term technical outlook/strategy.

Bank of Japan (BOJ)has just announced its latest monetary policy which came in slightly below expectation as the quantum of government bonds purchases (quantitative easing) was left unchanged at an annual pace of 80 trillion yen and nothing is being mentioned about enacting polices related to “helicopter money” . The only new monetary easing measure is equites related exchange trade funds (ETFs) purchases where BOJ will increase to an annual pace of 6 trillion yen from 3.3 trillion yen.

A surprise move is that Government Kuroda has ordered an assessment of the effectiveness of BOJ policy to be undertaken at the next monetary policy meeting in September. This action has implied that BOJ has subtlety acknowledged that the current monetary policies are losing its effectiveness to drive up the targeted economic targets, especially on inflation which actually opens  the door for a discussion on a change in legislation to allow for unconventional policies such as “helicopter money”.

Despite today’s disappointing move by BOJ, price action of the Nikkei and USD/JPY are still holding above their respective key medium-term pivotal supports at 16200 and 103.55/30 after an earlier breach (no 4 hour close below it).

Key Eurozone and Germany economic data releases/events for today:

• Eurozone Q2 GDP (preliminary) @0900GMT (1.6% y/y & 0.3% q/q consensus)
• Eurozone Core Consumer Price Index (preliminary) for July @0900 GMT
• Eurozone Unemployment Rate for June @0900GMT (10.1% consensus)

Now let’s us take a look on the key technical elements for the DAX.

Key elements

• Since the 19 July 2016 low, any minor pull-back seen in the Index has managed to be held by a short-term ascending trendline (depicted in dark blue) and current price action is now coming close to the aforementioned trendline at 10290 which is slightly above yesterday’s predefined intermediate support of 10260 (see 1 hour chart).
• The 4 hour Stochastic oscillator still has room to manoeuvre to the upside before reaching an extreme overbought which suggests that short-term upside momentum of price action remains intact.
• The intermediate resistance now stands at 10390 which was yesterday’s minor swing high.
• The key short-term pivotal support remains at 10180 which is the pull-back support of the former “Expanding Wedge” range top bullish breakout and the close to 38.2% Fibonacci retracement of the recent rally from 19 July 2016 low to yesterday’s high of 1088.
• The next resistance to watch for the Index will be at the key zone of 10530/650. It is defined by a confluence of significant elements (the long-term descending range top in place since 12 April 2016 that has capped all prior advances, the former ascending trendline support from September 2011 low now turns pull-back resistance & a Fibonacci cluster).

Key levels (1 to 3 days)

Intermediate support: 10290/260

Pivot (key support): 10180

Resistances: 10390 & 10530/650

Next support: 9980 (medium-term pivot)

Conclusion

Maintain bullish bias and any dip in price action is likely to be held by the 10290/260 intermediate support with a maximum limit set at the 10180 daily short-term pivotal support for another potential push up to retest 10390. Above 10390 is likely to open up scope for a further rally to target the key resistance zone of 10530/650.

On the flipside, failure to hold above the 10180 short-term pivotal support may negate the preferred bullish tone as the Index reintegrates back into the “Expanding Wedge” configuration (failure bullish breakout) for another round of choppy decline.

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