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DAX Price Outlook: Germany 30 Index Showing Signs of Fatigue

DAX Price Outlook: Germany 30 Index Showing Signs of Fatigue

Richard Snow, Analyst

DAX Talking Points:

  • ECB expected to keep rates unchanged but could add stimulus through existing programs
  • The DAX index failed to break above the September high and now trades below the rising wedge formation
  • IG Client Sentiment hints at potential move lower despite traders remaining net short
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ECB Expected to Keep Rates on Hold in December Meeting

The ECB is set to meet on Thursday to assess the effectiveness of current monetary policy and whether the underlying economic conditions necessitate an increase in supportive measures - with one of those measures being a possible change to the interest rate.

According to a Bloomberg survey, no change in the main interest rate is anticipated, however, if the central bank decides that more support is needed, the existing pandemic emergency purchase program (PEPP) and the targeted longer-term refinancing operations (TLTRO) are most likely to be relied upon.

This comes after ECB President, Christine Lagarde’s statement on November 11 referring to the effectiveness of TLTRO and PEPP and that, “they are likely to remain the main tools for adjusting monetary policy.”

For more information, take a look at our full ECB rate announcement preview

DailyFX economic calendar

For all market-moving data releases and events see the DailyFX Economic Calendar

DAX Showing Signs of Fatigue

Dax price action has slowed significantly after such a strong ‘v-shaped’ recovery off of the October low, bringing into focus the possibility of lower future prices. After failing to break above the September high of 13462, price action continued to consolidate, however, the initial signs of a short-term retracement are appearing on the chart.

Price action has broken below the rising wedge formation, ushering in a potential bearish view of the market, at least in the short-term. Additionally, the MACD line crossed below the signal line, indicating a potential reversal in momentum to the downside. Continued selling would highlight the 12,930 level of support followed by the 12,725 marker.

A failed move lower could see price action move sideways for some time while the possibility of a continuation of the upward trend cannot be written off. A break above the rising wedge and the recent high of 13,460 will be needed to renew hopes of further upside.

DAX Daily Chart

DAX daily chart

Chart prepared by Richard Snow, IG

What Does the Rising Wedge Signal to the Market?

The rising wedge pattern is a powerful consolidation price pattern formed when price is bound between two rising trend lines. It is considered a bearish chart formation which can indicate both reversal and continuation patterns – depending on location and trend bias.

Rising wedge formation

For an in-depth look at this unique pattern, read our dedicated article on the rising wedge

Client Sentiment Hints at a Move Lower Despite Net Short Positioning

DAX IG client sentiment
  • Germany 30: Retail trader data shows 42.46% of traders are net-long with the ratio of traders short to long at 1.36 to 1.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Germany 30 prices may continue to rise.
  • The number of traders net-long is 9.96% higher than yesterday and 36.21% higher from last week, while the number of traders net-short is 2.10% lower than yesterday and 14.67% lower from last week.
  • Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current Germany 30 price trend may soon reverse lower despite the fact traders remain net-short (when adopting a contrarian approach to sentiment).

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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

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