DAX on trigger-hold…?

23. tammikuuta 2018 | 1 min lukea

German DAX-index triggered strength last week, despite looking for technical confirmation in a case where the index would find ground above resistance at 13 525, during relatively high trading activity. Potential outlook looks like it might be positive, as the technical long-term trend shows potential continued strength. DAX could however trigger weakness, at a scenario where the index starts moving below support area around 12 700.

Last week the German market finished the week with buyers in control. German DAX-index gained +1.4 percent, closing the week at 13 434.45. So far the index has gained +4.0 percent this year.

Last week the market looked like it was on hold, partly due to upcoming social democrat meeting during the weekend, when its members voted on how formal coalition negotiations with Angela Merkel CDU should take off.

The divided social democrats voted yes to continued government negotiations, which could deem positive for the market.

The state of the market looks promising, and earnings season the upcoming weeks might fuel further strength.

The strong euro against the U.S dollar shows potential concern. As the euro gets stronger, German companies competitiveness slows down. On top of that, the ECB has shown signals of potential tightening surrounding its monetary policy. The euro against the U.S dollar also shows technical positive outlook up ahead, which could potentially fuel the current scenario even further.

On a more long-term view, such a scenario could even result that it would be a German replacement when Italian Mario Draghi as head of ECB closes in on his final mandate in October 2019. A German replacement, fostered by German Bundesbank could result in a more restrictive view of its monetary policy, fueling even further strength into the euro.

Moving over to the DAX-index, the technical long-term view still looks promising. The index is well above its 40-week moving average, as well as higher highs and lows.

Weekly chart of the DAX                                                                                                                                     

Since November the DAX continues to consolidate, before potential upcoming breakout.

Potential further strength could come to light, in case DAX during increasing trading activity find itself above resistance level at around 13 525.

In a scenario where the DAX turns south, and break resistance area around 12 700, further weakness could be up ahead.

Moving over to the daily chart below, the DAX clearly shows a pattern of an expanding triangle formation, where volatility has become larger and larger.

Daily chart of the DAX

In the daily chart, potential further strength could come to light, in case the index find itself above resistance at 13 525, during increasing trading activity. Should the index turn around, and break support at 13 140, the index might be about to show further weakness.

In such a case, the likelihood of testing support at 12 700 would increase, hence joining its 200-day moving average, and its lower support area within its expanding triangle formation. In a case where this support level would break, technically potential further weakness increases its probability.

Moving over to an even shorter timeframe, the hourly chart below. Short-term strength has appeared, closing in on significant resistance at 13 525.

Hourly chart of the DAX                       

Long-term technical support at 13 350 is of interest, potentially closing in on support at 13 140.

Short-term traders might be keeping a closer eye on 13 350, opening up for a potential move to 13 525. Relatively high trading activity might be a potential sign of strength.

In a case where the DAX starts breaking support, at 13 350, short-term weakness might be in the ball park.


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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.


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