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DAX: Downside Risk Remains

DAX: Downside Risk Remains

Paul Robinson,

What’s inside:

  • The DAX adds further losses following Monday’s reversal
  • Important support and resistance levels highlighted
  • BoE tomorrow could spark volatility if outcome or indications is outside of market expectations

The DAX demonstrated good follow-through yesterday after Monday’s reversal event from a confluence of resistance levels. The turn lower to start the week and month has been the strongest we have seen since shortly after the EU referendum caused a stir in markets.

At the time of this writing, the first support zone around 10100 is holding. A break below there and support comes in at the psychological 10k mark, then we will look to the 9900 area, and with extended selling pressure the zone between ~9820 and 9730 will come into view.

Resistance lies around the 10265 level we previously noted as an important support level once the bottom-side trend-line of the rising wedge formation was undercut.

While the down-side still looks at risk, we must respect support levels and watch how the market reacts to them as we shape our trading plans.

We have a potentially high impact event tomorrow, with the Bank of England monetary policy decision to be released at 11:00 GMT time. The BoE is expected to reduce its benchmark rate to a record low 0.25% from 0.5% in anticipation of a strong downturn in the UK economy following the vote to leave the EU. Given the expected move by the central bank, the market’s focus will be on what extent the BoE plans to add additional liquidity. With that said, traders need to be prepared for potential market gyrations should the central bank provide strong indications.

Looking to improve your skills in technical analysis? Check out one of our free trading guides designed for traders of all experience levels.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX.

He can be emailed at instructor@dailyfx.com with any questions, comments, or concerns.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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