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DAX 30 Index Consolidating Below Key Resistance Ahead of PMI Release

DAX 30 Index Consolidating Below Key Resistance Ahead of PMI Release

Daniel Moss, Analyst
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DAX 30 Index, German Partial Lockdown, Coronavirus Vaccine, Fiscal Support – Talking Points:

  • A risk-on tilt was seen during APAC trade as investors cheered positive vaccine developments.
  • The potential extension of Germany’s national lockdown may weigh on regional asset prices.
  • However, vaccine developments and the likely provision of additional fiscal support could limit the index’s downside.

Asia-Pacific Recap

Asian equity markets kicked-off a fresh trading week on the front foot, seemingly buoyed by positive vaccine news.

Australia’s ASX 200 index climbed 0.34% while China’s CSI 300 index soared 1.24%.

South Korea’s KOSPI index surged 1.92% to close at a fresh record high, as Samsung Electronics and SK Hynix stormed higher on the back of the improving outlook for the semiconductor industry.

In currency markets, the haven-associated US Dollar and Japanese Yen continued to lose ground against their higher-beta counterparts, while the cyclically-sensitive Norwegian Krone largely outperformed.

Gold and silver prices nudged marginally higher as yields on US 10-year Treasuries held relatively steady.

Looking ahead, a slew of preliminary PMI figures out of Europe and the US could prove market-moving alongside speeches from members of the Federal Reserve and Bank of Canada.

DailyFX Economic Calendar

Extended Lockdowns May Hinder DAX 30

Upcoming German PMI data may weigh on the benchmark DAX 30 index, as Chancellor Angela Merkel pushes for an extension of the nationwide partial lockdown imposed at the start of the month.

Merkel is scheduled to meet with regional premiers later today to discuss enforcing more stringent measures in light of an overwhelming surge in Covid-19 infections.

Coronavirus cases have continued to hover at levels almost three times higher than the April peak, despite the imposition of a partial lockdown in early November.

Source - Worldometer

Although the viral curve has notably flattened since restrictions were tightened, with the number of patients in intensive care rising by over 70%, the extension of current restrictions seems relatively likely.

That being said, positive vaccine progress may limit the potential downside for regional risk assets, as Health Minister Jens Spahn moves to secure 100 million doses of Pfizer and BioNTech’s vaccine for distribution in the first quarter of next year.

Moreover, the provision of additional fiscal support could yet underpin asset prices given recent comments from the Bundesbank stating that policymakers have “enough scope to significantly expand public stabilization if needed”.

The International Monetary Fund also implored the German government to deploy further fiscal aid measures, with the IMF’s mission chief for Germany Shekhar Aiyar stating that “the more severe a recession, the more you should err on the side of generosity [and] Germany is in the somewhat enviable position of having ample fiscal space”.

Nevertheless, disappointing preliminary PMI figures for the month of November may take the wind out of the DAX 30’s sails in the near term, with an elongated lockdown probably capping the index’s potential upside.

DAX 30 Index Futures Daily Chart – Bull Flag in Play

DAX 30 index futures daily chart created using TradingView

From a technical perspective, the DAX 30 index appears to be eyeing a push to fresh post-crisis highs as prices consolidate constructively below a key resistance range at 13350 – 13450.

With the RSI holding tentatively above 60 and the MACD indicator climbing into positive territory for the first time in over 6 weeks, the path of least resistance seems to favour the upside.

Moreover, prices seem to be carving out a Bull Flag continuation pattern, which suggests than extensive topside push could be in the offing.

A daily close above the November high (13299) is probably required to validate the bullish pattern and open the door to challenge the February high (13829).

The pattern’s implied measured move suggests prices could climb a further 6% from current levels and clamber above the historic 14,000 mark.

Alternatively, slipping back below the yearly open (13126) may neutralize near-term buying pressure and ignite a pullback towards the sentiment-defining 200-day moving average (12737).

DAX 30 Index Futures 4-Hour Chart – Symmetrical Triangle Hints at Further Upside

DAX 30 index futures 4-hour chart created using Tradingview

Jumping into a four-chart bolsters the bullish outlook depicted on the daily timeframe, as prices gyrate within the confines of a Symmetrical Triangle.

The development of the RSI and MACD indicator hint at further upside, as both oscillators hold firmly above their respective neutral midpoints.

A break above the November 18 high (13213) would likely propel prices to challenge the resistance range at 13350 – 13450.

Pushing above that would see the DAX 30 at its highest levels since the March nadir and within a stone’s throw of the record high set in February (13829).

Conversely, slicing back below the 200-MA and yearly open (13126) could generate a pullback towards the psychologically pivotal 13,000 mark and triangle support.

Retail trader data shows 36.47% of traders are net-long with the ratio of traders short to long at 1.74 to 1. The number of traders net-long is 1.45% higher than yesterday and 28.88% higher from last week, while the number of traders net-short is 0.04% lower than yesterday and 1.83% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests DAX 30 prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current DAX 30 price trend may soon reverse lower despite the fact traders remain net-short.

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.