Top Story

Two Scenarios We're Watching On The Dax

With DAX having risen to a pivotal zone of resistance, we highlight two clear scenarios worth monitoring.

As highlighted by my colleague Matt Weller, indices are locked within a range whilst they await the catalyst for their next directional move, and the DAX is no exception.

The past 7 sessions have seen the index confined to a 320 point range, although it can be argued this is part of a 600-point range it’s been confined to these past three weeks. Either way, global equity markets have paused for breath which means we should be headed towards range expansion (and therefore, hopefully a breakout).

At current levels, the DAX is of interest for two potential scenarios.

1)      Resistance holds and it rolls over, back within range: A zone of resistance around 11,810 – 11,865 has proven to be pivotal, and prices are trading just beneath it. Taking into account that a new bearish trend is underway since prices broken beneath the 12,172 low, and the leg lower was seen on strong momentum, bears could look to fade into minor rallies below resistance. This allows them to trade short at the high of the range, or position themselves near the end of a correction, and anticipate a break beneath the 11,266 low.


2)      Prices break resistance and confirm an inverted head and shoulders pattern: Switching to the four-hour chart, we can see the pattern more clearly which would be confirmed with a break above 11,865.  If successful, the pattern project an initial target around the 12,473 high. Although we’d expect a price reaction around the 12,115 gap, which makes it a likely interim target.

With economic data looking quite light for Europe, it will likely be trade developments which move markets, assuming they do at all. Therefor, if the inverted H&S is to be confirmed, it needs to be fairly soon or else it will morph into new pattern. And if no catalyst arrives, scenario one may be the better choice as it allows bears to short a technical play and trade within the range, until a market-moving event comes along.



Related analysis:
Did China Call Trump’s Trade Team? Why it Ultimately Doesn’t Matter for Traders
Gold Miners Could Shine In The Current Trading Environment
Copper's H&S Top Doesn't Bode Well For Miners


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