dax potential bullish breakout looms as ecbs tapering fears appear overdone 1833062016

Daily Outlook, Wed 05 Oct 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) had performed better than our expectation as it did not shape the expected minor pull-back towards the 10415 intermediate short-term support. It rallied straight towards the upper boundary of the mini “Expanding Wedge” configuration in place since 15 August 2016 high at 10650/700 (printed a high of 10647 in the closing hour of yesterday’s European session) in line with a return of global risk appetite behaviour (click here to recap our previous short-term technical outlook).

Thereafter, it shaped a 1.2% sell-off to print at low of 10519 as the U.S. session unfolded due to a media report that stated the ECB may consider to wind down its current quantitative easing (QE) programme in batches of EUR10 billion per month (liquidity withdrawal) when the current official QE programme ends in March 2017.

From a behavioural finance perspective, we think that yesterday’s ECB tapering fears that led to a sell-off in risk assets (equities) is likely to be overdone from a short-term perspective. It is because from the last ECB meeting in September, it has been made known that the central bank via Mario Draghi’s press conference that  ECB is not in favour/or reluctant to extend its current QE programme beyond March 2017 unless economic conditions deteriorate. Therefore, it is not a “100% unknown” fact that there will be a risk of tapering of ECB’s bond purchases (QE programme) after March 2017.

Key German economic data releases/events for today

• Markit Services PMI for Sep @0755 GMT (50.60 consensus)
• Markit PMI Composite for Sep @0755GMT (52.7 consensus)

Key elements

• Upside momentum has built-up as the daily (medium-term) RSI oscillator has continued to inch upwards from its key ascending trendline support in place since late August 2015. This observation suggests that the Index may see a bullish breakout soon from its 2 months plus of range configuration (Expanding Wedge) in place since 15 August 2016 high of 10806.
• Intermediate resistance stands at 10650/700 which is the upper boundary of the aforementioned “Expanding Wedge”.
• The next resistances stands at 10840 follow by 10990 which are defined by Fibonacci projection clusters.
• Intermediate support rests at 10520 which is the minor pull-back support of the former minor swing high area of 29 September/01 October 2016 with key short-term support at 10420 as defined by the 50% Fibonacci retracement of the recent up move from last Friday, 30 September low of 10184 to yesterday high of 10647.

Key levels (1 to 3 days)

Intermediate support: 10520

Pivot (key support): 10420

Resistance: 10650/700, 10840 & 10990

Next support: 10230 (medium-term pivot)

Conclusion

Potential bullish breakout looms, as long as the 10420 short-term pivotal support holds, the Index may see a retest on 10650/700 and a break above it is likely to add impetus for a further potential up move to target the next resistances at 10840 and 10990.

On the other hand, a break below the 10420 short-term pivotal support holds is likely to put the bulls on hold to see another round of choppy decline to retest the 10230 medium-term pivotal support.

Charts are from City Index Advantage TraderPro

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.