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DAX Range Continues, CAC 40 Declines into Support

DAX Range Continues, CAC 40 Declines into Support

What’s inside:

  • DAX remains in range
  • CAC 40 decline a sign, or healthy pullback?
  • Taking it slow until the market picks back up

Trading Guides and Forecasts

The DAX remains within the confines of the range dating back to the second trading day of the month. Outside of two days where the index attempted but failed to breakout (1/11) and breakdown (1/17), the range has been a very narrow 130 or so points between ~10520 and ~11650. Given the strong trend since November we continue to run with the idea that we are seeing a consolidation period before an extended move higher, but we will be patient and react versus predict.

The DAX is currently trading at the low-end of the range and needs to hold on a daily closing basis; a dip below 10520 can occur on an intra-day basis and no damage done as long as it recovers to finish the day back inside the range. Close below, and we’ll have to consider the possibility of the recent consolidation turning out to be a period of topping, or distribution.

DAX: Daily

Created with Tradingview

The CAC 40 hasn’t been holding as well as the DAX in the past week. The index is currently testing the low-end of a late-December consolidation period, and more importantly a trend-line running up from the November lows. We’ll be watching to see how French stocks react here; is the recent weakness a sign of a weakening backdrop for European equities, or just a healthy pullback? Watch the descending channel off the 1/13 high - a break above could be our cue it was just a pullback and it's ending.

CAC 40: Daily

Created with Tradingview

For now, the DAX isn’t a ‘fun’ place to be as a trader. There lie better opportunities in other asset classes at the moment, but that could change in a day so we need to be ready if (when) it does. You never want to get caught flat-footed.

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---Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at @PaulRobinonFX.

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