DAX 30: To Bounce Back on a Strong NFP?

2015-12-04 11:52:00 Alejandro Zambrano, Market Analyst

Talking Points

Yesterday’s DAX decline was justified, but the overall trend remains bullish above the November low and a good NFP reading might trigger a bounce
A soft NFP outcome may trigger a break to the November low and with this further losses for the DAX
A Bloomberg News Survey projects the U.S. NFP to decline to 200k from 271k

Yesterday’s big selloff slowed down as it approached its November low at 10,492. I expect the DAX to stage a rebound from current levels as long as this level holds. It might take a few days to clear out the bearish momentum, or it can go very quickly. It all depends on today’s U.S. NFP outcome. A Bloomberg News Survey projects a gain of 200k. This uncertainty will make it a challenging-day for DAX 30 traders.

If the November low of 10,492 does not hold as support, the DAX may reach 10,270 and thereby touch levels last seen at the October ECB monetary policy meeting. At the October meeting Draghi hinted about further stimulus, something which was delivered at yesterday’s rate meeting. However, the deposit rate cut was clearly lower than the market’s expectations and the ECB decided to cap their monthly asset purchases at €60bn instead of increasing the amount.

Looking beyond the near term I remain bullish the DAX, as E.U. economic growth indicators have been picking up and are expected to pick up further in 2016. The biggest risks to this scenario is further deterioration to the U.S. manufacturing sector, and a further Chinese economic slowdown.

Short-term Levels

Traders with an appetite for high-risk will probably buy on a break to 10,814 with a target at 11,000. While bearish traders will turn bearish on break to yesterday’s low of 10,635 and aim for the November low of 10,492.

Please note that today’s trading will be strongly influenced by the outcome of the U.S. labour market report. Most economists and most traders tend the get the NFP outcome wrong. Which makes it difficult to trade it.