dax potential short term recovery despite yesterdays plunge 1820222016

Daily Outlook, Thurs 07 July 2016 (Click to enlarge charts) What happened earlier/yesterday Since hitting a high of 9812 on Monday, 04 July 2016, the […]

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By :  ,  Financial Analyst

Daily Outlook, Thurs 07 July 2016

DAX (4 hour)_07 Jul 2016

DAX (1 hour)_07 Jul 2016(Click to enlarge charts)

What happened earlier/yesterday

Since hitting a high of 9812 on Monday, 04 July 2016, the Germany 30 Index (proxy for the DAX futures) has failed to make any breakthrough above the 9780 predefined intermediate resistance and tumbled by 5.20% to hit a low of 9302 seen in yesterday European session, 06 July 2016.

The main fundamental driver that triggered this decline is the fall in the USD/JPY as JPY’s strength resurfaced (proxy for safe haven flows) triggered by renewed Italian banking crisis that will have a negative domino effect across the EU financial system. In addition, uncertainty continues to rage on the technical details of a potential bailout plan for beleaguered Italian banks. The local Italian government is considering injection billions of euros into the banking system but EU bank bailout rules require investors (shareholder and bondholders) rather than taxpayers to shoulder the burden of such rescue package.

Even though, it has breached the lower limit of the medium-term pivotal support at 9510/9430 set for this week but it has managed to stage a rebound back above 9430. Therefore, we are still keeping our initial bullish stance and tolerate yesterday’s excess (noise) to the 9310 level.

Please click here to recap our latest weekly technical outlook/strategy published on Monday, 04 July 2016.

Key Eurozone economic data releases/event as follow:

  • ECB’s Account of Monetary Policy meeting for 02 June 2016 @1130GMT

Key elements

  • The Index is now being supported by the lower boundary of an ascending channel in place since the 24 June 2016 swing low area (Brexit) at 9310.
  • The aforementioned ascending channel support of 9310 also confluences with closely with the 76.4% Fibonacci retracement of the recent rally seen from 24 June 2016 low to 04 July 2016 high of 9812.
  • The 4 hour RSI oscillator has reintegrated back above the ascending trendline support which suggests that short-term upside momentum of price action has resurfaced.
  • The upper boundary of the short-term ascending channel now confluences with the 9780/820 “stubborn resistance”.

Key levels (1 to 3 days)

Intermediate support: 9406

Pivot (key support): 9310 (excess)

Resistances: 9650 & 9780/820

Next support: 9120


Maintain bullish stance. As long as the 9310 (excess) pivotal support holds, the Index is likely to see a potential short-term recovery towards 9650 before 9780/820.

However, a break below the 9310 pivotal support (daily close) may invalidate the preferred bullish bias to see a deeper slide to target the next support at 9120 (minor swing low of 24 February 2016) in the first step.


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