DAX: Draghi pulled the rug out from under the bulls

It’s been a harrowing trip for global markets today, and ECB President Mario Draghi was the conductor.

First traders were impressed by the size and scope of the ECB’s aggressive actions to ease monetary policy, but the market’s collective view shifted to dismay when Draghi later indicated that further rate cuts were neither anticipated nor needed. As my colleague James Chen noted earlier today, "While not as disappointing as December’s under-delivery of easing actions, the press conference essentially amounted to a forward-looking disappointment due to Draghi’s relatively strong comments regarding future rate cuts."

This reevaluation shifted all markets immediately from a risk-on to risk-off posture, leading to a big selloff in the US dollar, commodities, and equities. As my colleague Fawad Razaqzada noted in regards to the S&P 500, "given the technical importance of [the 2010 resistance] area, a sell-off here looked almost inevitable. So, at this stage, traders need to be open minded to the fact this could just be a short-term pullback rather than the start of another major leg lower."

A similar move is playing out in European stocks, highlighted by Germany’s DAX index. While not quite as well-defined as the resistance area in the S&P 500, the DAX has reversed off a key round number / Fibonacci resistance zone of its own in the 10,000-10,060 range. Like the S&P 500, the German bourse is also forming a large Bearish Engulfing Candle* of its own, signaling a big shift toward selling pressure that could carry over into next week. Meanwhile, the daily RSI remains in negative territory (<60), signaling some medium-term skepticism toward the DAX as well.

From here, the next meaningful support level to watch is at 9,300, where the index consistently found support last year and even in January of this year. If that level gives way, a continuation down to the 18-month low near 8,700 could be next. As it currently stands, the bears will maintain the near-term upper hand as long as the DAX holds below 10,060.

*A Bearish Engulfing candle is formed when the candle breaks above the high of the previous time period before sellers step in and push rates down to close below the low of the previous time period. It indicates that the sellers have wrested control of the market from the buyers.

Source: FOREX.com

For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom)

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT