DAX 30 Is Slightly Overbought Ahead of Crucial ZEW Index
The short-term trend is bullish above 10,676.
With a great deal of resistance in the form of the 10,869, 10,958, and 10,996 levels (please see chart below), we assume traders will hold off with new bullish positions until we get a pullback to the 10,676 - 10,745 range (light green rectangle). In the case that we break 10,676, the price might reach 10,582.
While this analysis is straightforward, we note that the DAX is a bit choppy when looking at a daily chart, this means that the levels mentioned may not necessarily hold as well as we would like too. I do, however, think that yesterday’s close was strong and yesterday’s low of 10,488 will probably hold over the next few days. Some traders will use this to build a bullish position, however, in the short-term I suspect price action will be choppy.
Today, the important ZEW expectations index is on tap, traders watch this economic indicator as it has a good correlation with DAX year-over-year returns. When the ZEW expectations index trends higher, the DAX tends to be supported. And when it declines, as it has been doing since March, the DAX tends to turn softer. It is therefore a key indicator that we’re watching and a Bloomberg News survey projects a ZEW Expectations index reading of 6 from 1.9 in October.
We can also isolate the current ZEW expectations level to predict where the yearly DAX growth should be. Right now, it’s implying that the DAX should be up by 2.10 percent year-on-year, given last month’s reading, while the DAX 30 is higher by 7.3% given yesterday’s closing price. With this in mind, the DAX is slightly overbought.
DAX Is Short-Term Bullish Above 10,676
Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano
--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.