EUROPEAN MARKET

DAX 30 set to extend climb despite threat of extended restrictions


DAX 30 Index, Coronavirus Restrictions, Vaccines, German Lockdown, IGCS – Talking Points:

  • Stock markets rallied heavily during APAC trading, with investors applauding the prospect of additional fiscal support from the United States.
  • The threat of prolonged foreclosure measures in Germany could start to weigh on regional market sentiment.
  • the DAX 30 The index appears poised to extend recent gains as price constructively holds above key support.

Asia-Pacific recap

Stock markets gained heavily during Asia-Pacific trading after President-elect Joe Biden announced a bigger than expected $ 2 trillion relief package. Australia ASX 200 the index rose 0.43% while that of Japan Nikkei 225 climbed 0.85%. China’s CSI 300 index plunged 1.93% after the outgoing Trump administration signed an order strengthening a November ban preventing U.S. investment in companies associated with the Chinese military.

In foreign exchange markets, the cyclically sensitive Australian and New Zealand dollars significantly outperformed while the Japanese Yen and US dollar lost ground to its main counterparts. Gold price edged down as yields on 10-year US Treasuries rose 2 basis points.

Looking ahead, the release of the minutes from the December European Central Bank meeting is making headlines alongside US unemployment claims figures.

DAX 30 set to extend climb despite threat of extended restrictions

DailyFX Economic Calendar

Merkel warns of extended restrictions

The possible extension of coronavirus restrictions in Germany could start to weigh on regional risk appetite as the number of infections continues to climb despite the imposition of a nationwide lockdown at the end of the month. month of november.

Chancellor Angela Merkel has warned that severe restrictions may have to remain in place until Easter after the detection of the highly transmissible mutation, which is currently wreaking havoc in the UK, Germany. Indeed, Ralph Brinkhaus – the leader of the ruling CDU / CSU group – stressed that “if this virus really hits harder, then the lockdown measures will have to be stepped up”.

DAX 30 set to extend climb despite threat of extended restrictions

Source – Worldometer

Given that the 7-day moving average of tracking infections continues to hover at just under 20,000 as the country is placed under strict lockdown measures, further tightening for a longer period seems almost inevitable.

That being said, investors may dismiss these worrying concerns in the hope of a quick return to a level of normalcy in light of the approval of the Covid-19 vaccines developed by Pfizer and BioNTechand Moderna.

However, some caution should be maintained in the short term, as the reality of a prolonged period of severe restrictions could start to eat into risk appetite and in turn weigh on the German benchmark DAX 30.

DAX 30 set to extend climb despite threat of extended restrictions

Source – Our World in Data

DAX 30 Index Futures Daily Chart – RSI Push Into Overbought Territory

From a technical perspective, further gains appear to be on the horizon for the DAX 30 index, with prices remaining constructively perched above key support at the February 2020 high (13,829).

The stacking of the bullish moving average, in tandem with the RSI holding firmly above 60 and considering a push into overbought territory, hints at increasing buying pressure.

A daily close above the record set on January 8 (14138) would likely trigger an impulsive upward push towards the 61.8% Fibonacci expansion (14316) and psychological resistance at 14400. A violation that likely opens up the way for buyers to push prices towards 78.6. % Fibonacci (14673).

Alternatively, falling back below the range support at 13750 – 13850 could trigger a short-term pullback towards the 34-day exponential moving average (13560).

DAX 30 set to extend climb despite threat of extended restrictions

DAX 30 Index Futures Daily Chart Created Using Tradingview

DAX 30 Index Futures 4-Hour Chart – Rising Coin In Play?

Zooming in on a four hour chart strengthens the bullish outlook depicted over the daily period as prices move away from the 50-MA and February high (13829).

With a bullish cross on the MACD indicator and the RSI rising above 50, the path of least resistance appears to favor the upside.

However, the index appears to be carving out a bearish Wedge Rising Wedge pattern that could ultimately trigger a significant downward reversal.

Nonetheless, if price remains constructively positioned above 50-MA, and wedge support remains intact, further gains look likely in the near term.

Clearing the 50% Fibonacci (14010) would likely chart a course for the price to probe the annual high (14138), with a convincing push above putting the 78.6% Fibonacci (14258) in the crosshairs. .

Conversely, a pullback below wedge support and the Jan 13th low (13870) could trigger a pullback towards the 200-MA (13525) which defines sentiment.

DAX 30 set to extend climb despite threat of extended restrictions

4 hour chart of DAX 30 index futures created using Tradingview

IG Client Sentiment Report

the IG Client Sentiment Report shows that 31.21% of traders are net-long with the ratio of short to long traders at 2.20 to 1. The number of net-long traders is 4.66% higher than yesterday and 66.67% more higher than last week, while the number of net-short traders is 4.86% higher than yesterday and 3.24% lower than last week.

We generally take a vexing view of crowd sentiment, and the fact that traders are net-short suggests DAX 30 prices could continue to rise.

The positioning is more net-short than yesterday but less net-short than last week. The combination of current sentiment and recent changes gives us another DAX 30 commercial bias.

DAX 30 set to extend climb despite threat of extended restrictions

– Written by Daniel Moss, Analyst for DailyFX

Follow me on twitter @DanielGMoss

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