DAX 30: Momentum Slows Down, FOMC Minutes on Tap
The DAX 30 bulls have booked profits as price momentum slows near its November highs. Yesterday, the DAX 30 traded to 10,978, which is just 78 points from the November high at 11,057. It’s also a 484 point difference on Monday’s low. This makes the DAX index short-term overbought.
Swing traders which have been long will probably book profits near the current levels, while traders expecting a Christmas rally will keep their positions.
For now I think it makes sense to wait for a break to the November 11 high at 10,993 before expecting further gains to the November high at 11,057 and then to propel to the August high of 11,156, in case we get an extension.
In the case that the DAX backs off from further current highs, I expect the index to be supported within the 10,676 – 10,780 range. I will treat the short-term trend as bullish above 10,571.
Yesterday’s Rising ZEW Expectations Is Good For Long-Term Returns
Yesterday, the DAX saw higher prices on a better than expected ZEW expectations print index; the ZEW outcome was 10.4 vs. the 6 expected (Bloomberg poll). The outcome was also substantially higher than the prior month’s reading of 1.9.
If the ZEW expectation starts to trend higher in the coming months, which I expect it to do as Real Eurozone M1 (Money Supply) is indicating strong growth, the DAX should be able to trade higher in the months ahead and the index will be supported on dips.
The first Fed rate hike is still the biggest risk to a stock market rally. Traders scrutinize the minutes to figure out what triggered the Fed to mention the December meeting as a potential lift-off date. The markets will also look for clues as to how many rate hikes are on tap. For now the market is only predicting 3 rate hikes by the end of 2016, while the Fed itself is expecting 5 hikes.
If the Fed minutes this evening show that the market should expect more than 3 hikes, then this may have adverse implications for the DAX.
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.