With the recent development in the German DAX Index and its inverse correlation to EURUSD, technicals look promising for some further upside until year end.

After the double-bottom formation built during Q3/2015, DAX30 was able to strongly rebound to (almost) 11’000 levels. The measured price target given by that double-bottom formation suggests of upside to 11’650 (+6%). Nevertheless, the momentum is still very strong but slightly overbought, suggesting of not chasing the upside to heavily and instead wait for a breach of the resistance line (blue) starting off April this year – break-out zone in numbers: 11’150 – 11’200.

The intermaket perspective supports this scenario: we have EURUSD just recently crossed below its 7-month trend-channel led by a momentum trendline breach and in combination suggests of further downside in the next couple of weeks / till year end. First support could be found at 1.08 with further downside and a test of the 12-year low at 1.0462.

Conclusion: do not chase upside in DAX30 too aggressively, rather wait for break-out confirmation! Slowly short EURUSD at current levels (Risk Stop: 1.1150).




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2 Responses

  1. The timing for our recent call on 2nd December 2015 could have not been any better. The following day, Mario Draghi failed to deliver the major stimulus packages which had been expected and the markets reversed accordingly.

    EURUSD failed to post e new 7-month low (below 1.0520) by just 4 PIPs and strongly rebounded over 400 PIPs to 1.0981 that same day! Some consolidation followed and in the meantime EURUSD was able to regain momentum along with a downward-sloping momentum trendline break. This suggests of further upside and a possible break of 1.1230 which is the next resistance to take in sight.

    A few days ahead of the ECB meeting, DAX30 was already showing some weakness as mentioned in our last update. At first, it looked like that it has surpassed major resistance levels (11’200ish) but the momentum was not confirming the new highs. Following this price vs. momentum divergence, the upward momentum trendline was breached and acted as a major warning that the uptrend may have come to an end.

    On 3rd December, the day of the ECB meeting, DAX30 then fell below the price support-line (see red eclipse), confirming the reversal and the call of significant downside. After the drop to the major 38.20% fibonacci retracement level, meant to act as healthy consolidation when followed by a rebound, it even fell below this level (10’620) followed by further downside to 10’130 (-9.50%).

    Conclusion: Given the recent price action and the intermarket picture between DAX30 vs. EURUSD, we expect some short-term consolidation in DAX30 to max. 10’630 followed by new lows to September’15 resp. August’15 lows ~9’350. Sell into weakness. Whereas in EURUSD we see an intermediate test of 1.1230 as inevitable.

    DAX30 - 14122015
    EURUSD - 14122015

  2. Following our call in early November 2015, we expected an intermediate bullish break-out and further upside in DAX30 as well as EURUSD to tank and test its July lows (~1.08) resp. March low at 1.0462.

    After a second attempt, DAX30 successfully breached the resistance line (blue) and advanced 450 points to 11’400 where it ran into some consolidation. Currently trading at 11’200 levels, the momentum is slightly diverging vs. price but no sell signal is yet in sight. For a valid sell signal, a cross below the upward support line (orange) is needed.

    Along with the development in DAX30, EURUSD slipped through its supports around 1.08. In the meantime, it has lost over 450 PIPs and is now trading at 1.0570 levels which is roughly 100 PIPs above its March 2015 low (1.0462) and our initially given price target.

    Conclusion: With the latest development align with our view, we still believe in further upside in DAX30 resp. further weakness in EURUSD. Nevertheless, ahead of tomorrow’s ECB rate decision/speech along with a potential come back of some volatility, we would hereby take out risk and close open positions accordingly. Furthermore, we close our bearish EURUSD trade idea with a profit of 450 PIPs.

    DAX30 - 02122015
    EURUSD - 02122015

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