Key Talking Points:
- Global equities remain strong as Biden promises further stimulus
- DAX 30 marks new all-time high above 14,000
- EUR/USD breaks below ascending trendline
Global stock markets had a positive run last week as a Democratic blue wave increased hopes that the Biden administration will introduce extra stimulus. And no time has the president-elect wasted on delivering what was expected from him, promising immediate payments of $2,000 to each American once he takes office on January 20th.
In Europe, positive momentum was also supported by the approval of the Moderna vaccine, with Astrazeneca’s joint vaccine with Oxford University pending approval this week. But equities are slightly softer this morning in Europe as many indices have reached a tipping point and are struggling to see further upside amid current conditions.
DAX 30 marks new all-time high above 14,000
The Dax 30 reached a new all-time high on Friday as it crossed over the 14,000 line, but the German index has reversed slightly and is now finding resistance at that level. The country continues to struggle with the spread of Covid-19, with the death toll having surpassed the 40,000 mark and intensive care beds at more than 80% of their capacity.
Angela Merkel has warned that the worst is yet to come as the country braces itself for some of the hardest weeks before the effect of the vaccines and the national lockdown start to show.
DAX 30 Weekly chart
It is hard to contradict the notion that “the path of least resistance is up” at this point, given equity markets are showing somewhat of a “the only way is up” rhetoric, but overbought conditions continue to show in the DAX 30, despite there being a lack of seller support to bring the index significantly lower.
Technically, there are no points of reference above the current price other than the 127.2% Fibonacci retracement level from the 13,380 – 7,970 drop back in March, which would place the next bullish objective at 15,424. But we can expect the German index to struggle in its path higher, so corrections are likely to take place as overbought conditions are rebalanced on the back of buyer weariness and unwillingness to take on such risk at current levels.
To the downside, important support is expected around the 13,600 area, but further pullback towards the 13,000 mark cannot be discarded as new buyers look for a good entry point.
| Change in | Longs | Shorts | OI |
| Daily | 19% | -4% | 2% |
| Weekly | 27% | -12% | -2% |
EUR/USD breaks below ascending trendline
In the FX space, the Euro is becoming more bearish against the US Dollar despite the long-term bullish trend. The surge in EUR/USD seen since the beginning of November created an ascending trendline marked by connecting the higher lows, but this has now been broken to the downside as the pair struggles to remain above 1.20.
This price reversal is mostly due to a strong comeback in the US Dollar, and momentum indicators are showing that we may see price consolidation with a bearish inclination before EUR/USD recovers positive momentum.
EUR/USD Daily chart
A convincing break below the December 23 low (1.2154) would probably cause a stronger bearish run towards the support/resistance line seen at the beginning of December (1.2121). This would further increase the notion that the path of least resistance is lower, possibly testing the 1.20 psychological line.
Alternatively, a break above 1.2266 could see buyers regain control in an attempt to bring EUR/USD above the ascending trendline, aiming for the December high at 1.2349.
| Change in | Longs | Shorts | OI |
| Daily | 3% | 4% | 3% |
| Weekly | 0% | 10% | 3% |
Learn more about the stock market basics here or download our free trading guides.
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
