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DAX 30: NFP Outcomes and Its Influence On The DAX

DAX 30: NFP Outcomes and Its Influence On The DAX

2015-11-06 10:27:00
Alejandro Zambrano, Market Analyst
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Today is Non-Farm Payrolls day and the DAX is set to move a great deal following the outcome, but exactly how the market will react is unfortunately random. We know this after looking at NFP days over the last 12 months and investigating how the DAX Cash index closed by the end of the day vs. the amount and whether the NFP topped or missed expectations. Data for April 3, 2015 is missing as it was a bank holiday in Germany.

Given the random outcome, we’re placing more emphasis on technical analysis and correlations. In the case that the DAX respects its 10,685 low, the trend will remain bullish and we may reach 11,160 over the next 1 to 2 weeks. In the case that we break the 10,685 low, we may get a few days of lower prices. Please see the chart below.

We’re also keeping an eye on the S&P 500, and if buyers are able to defend the 2070 low, its trend will remain bullish and this will strengthen the case of a higher DAX.

The DAX Cash Index and NFP Days

From a theoretical point of view, we assume that a better than expected NFP outcome should boost stocks. In the chart below, along the x-axis, we show the NFP outcome vs. the Bloomberg News surveys. Along the y-axis we display percentage changes in the DAX Cash index by the end of the day.

If we look at the top right box, we see a reading of 91, 0.51%. This means that the NFP beats its estimate by 91K jobs and the DAX closed 0.51% higher. The second reading in the same corner is 12, 0.19% which means that the NFP beat expectations by 12k and the DAX rose 0.19% by the end of the day.

As we can see below, the reactions are fairly random. If the market would act according to our theoretical standpoint i.e. better than expected NFP outcomes boosting stocks or a lower than expected NFP outcome softening stocks, all results should be seen in the upper right or lower left corners. However, only 6 out of 11 observations ended in one of these two boxes, highlighting that the market reacted in a ‘rational’ manner only 54.5% of the time.

The other 5 occasions are showing an irrational outcome: Twice we saw ‘bad’ data triggering DAX gains, while thrice we saw a ‘good’ outcome and a softer DAX.

With this in mind we’re reiterating our idea of placing more emphasis on technical analysis levels and correlations, such as the one seen between the DAX and the S&P 500. This is due to today’s NFP outcome which will likely generate a random outcome for the DAX almost 50% of the time.

DAX 30: NFP Outcomes and Its Influence On The DAX

Data source: Bloomberg, Own Calculations

Technical Levels

We’re sticking to the 10,685 low which is currently the trend defining level. As long as the index trades above this level, we may reach 11,160 over the next 1 to 2 weeks. In the case we break the 10,724 the DAX may reach 10,500.

DAX 30: NFP Outcomes and Its Influence On The DAX

Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano

--- Written by Alejandro Zambrano, Market Analyst

Alejandro Zambrano, azambrano@dailyfx.com | Twitter: @AlexFX00

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