With the DAX 30 gains of the last two days being well justified by fundamentals, I expect traders to be buying dips in the days ahead.
The very short-term trend is bullish above Tuesday’s low of 10,864 and it would not surprise me if traders add to their long exposure on a pullback to the 11k mark. At one point over the next week or so I expect Thursday’s high of 11,154 to be breached. In this scenario I see the DAX 30 reaching the psychological level of 11,250. In the long run the price may reach 11,700.
The reason for this upbeat outlook is the macro fundamental changes of the last two days.
Firstly, the German ZEW expectations rose to 10.4 vs. the 6 expected (Bloomberg poll). And if the ZEW expectations index can remain bullish in the months ahead, which is supported by the move higher in the Sentix index and Real E.U. M1 (Money supply), then the DAX should be supported as well.
Secondly, the ECB minutes were dovish. The central bank appears to be doing whatever it takes to boost inflation. This is supporting the DAX, and history over the last few years has shown that the best time to be long stock markets is when the central bank is backing the rally. Look at past Fed QE programs to see how profound the impact was on equity indices.
And if we look ahead, will E.U. inflation bounce back swiftly? Most likely not, as Brent crude oil remains soft and the E.U. unemployment rate is elevated.
With this in mind, small or big pullbacks in the DAX will probably be met by buyers. I am happy to remain bullish as long as the technical trend supports it.
Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano
--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com
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