- The DAX initially fell during the trading session on Friday but turned around to show signs of life as the €18,600 level has offered a little bit of support.
- The market had recently tested that area as significant resistance before pulling back, so now there’s a certain amount of “market memory” that comes into play.
- That being said, keep in mind that the DAX is a leading indicator of what European indices are going to do, as it is considered to be the “blue-chip index” of the European Union.
Traders are betting on the idea that the European Central Bank is going to loosen monetary policy, and that of course drives up the value of the DAX as there are a lot of exporters on this index and the German economy is almost certainly driven by the ability to send goods to other countries, and a cheaper euro certainly will help that become a reality. This is why there is a negative correlation between the euro and the DAX over the longer term, but it does not always work that way.
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Technical Analysis
The 50-Day EMA is near the €18,250 level, which is an area that previously had been resistance and I think it should now be supported. Short-term pullbacks continue to offer a bit of value that I think a lot of people will be paying close attention to. Friday was a perfect example of this in action, and I think that will continue to be the way going forward. You can make an argument that we are in the midst of forming a bullish pennant, which of course attracts a lot of attention in and of itself.
In fact, the “measured move” of the bullish pennant suggest that we could go to the €19,700 level over the longer term. That being said, if we break down below the bottom of the candlestick from Friday, I think that the 18,250 level end up being a massive support level, right along with that 50-Day EMA. In general, I have no interest whatsoever in trying to short this market, and I believe that the DAX will continue to see plenty of upward momentum.
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