DAX: Pressing Resistance Ahead of BoE Meeting
- DAX clears one level of resistance, faces bigger one now at 10000/100
- Anticipated stimulus in key economies is helping push markets higher
- BoE could be a short-term catalyst for a pullback
On Tuesday, the DAX continued its advance from the July 7 low, clearing resistance in the 9730/820 vicinity, and in the process of doing so it made a higher from the July 4 swing high. This put the DAX up against another important area of resistance which has been in play since March – 10000/100. The higher high created wasn’t the most noteworthy given the generally sloppy and unreliable short-term trends in recent months, but nevertheless it is a higher high above resistance. Yesterday, the market took a breather just below 10k, but today it is again attacking the 10000/100 zone.
This brings us to an interesting juncture with the BoE rate decision coming up later this morning at 11:00 GMT. As we said yesterday, the FTSE appears to be set up for a ‘buy the rumor, sell the news’ scenario with the market already effectively pricing in central bank actions.
To rewind for a minute: Risk sentiment began quickly recovering following ‘Brexit’ and further mended itself a few days later when Carney hinted towards a summer stimulus plan. This week got off to a good start when Shinzo Abe was reelected for another term as Japan’s Prime Minister; more stimulus in Japan is anticipated sooner rather than later. The DAX, which has a 12-month correlation to the Nikkei of nearly 90%, of course joined in on the optimism.
With global markets all responding to fresh rounds of anticipated stimulus, stocks are poised for a decline given some of the already priced in expectations. The FTSE, and other markets in response, may initially pop higher, but we look for it to wear off quickly. With that in mind, resistance in the DAX looks like it could be formidable to overcome. Should the DAX continue to clear through 10000/100 with authority, though, then we will look to the 10250/300 vicinity as our next strong zone of resistance.
We will be watching that 9730/820 zone as support on any decline which may unfold from here.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX.
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