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DAX on Verge of Falling into Air Pocket

DAX on Verge of Falling into Air Pocket

What’s inside:

  • DAX turns lower from resistance, April gap-fill risk growing rapidly
  • Gap is from 12289 down to 12048
  • Would require a strong break above 12486/537 to put outlook on hold

Find out where our analysts see global equity markets heading in our Q3 Quarterly Forecast.

On Tuesday, we expressed our view that the DAX is at serious risk of filling the gap from the first round of the French presidential elections in April. Earlier in the week, risk/reward was compelling for shorts given the retest taking shape of broken support in the vicinity of 12486/537 and proximity for a stop (just above resistance) and target (gap-fill).

With the market having turned strongly lower yesterday, the next focus is on support by way of the 6/30 low at 12319, but more importantly the 4/24 gap-day low of 12289. A break and close below the gap-day low and the air pocket extends down to 12048. It could happen all in one flush (not uncommon when in gaps), or it could take its time like the CAC 40 is right now. In either event, once in the gap – look for it to get filled.

What will undercut this view? A strong daily close above the beforementioned resistance zone of 12486/537. This wouldn’t necessarily create an outright bullish situation, but it would at the very least put the ‘gap-trade’ on hold.

Heads up – We’ve have some potentially market-moving data later today when the June U.S. jobs report is released at 12:30 GMT. It’ll have the most impact on U.S. index futures, but if we see a sizable move in the S&P 500 futures the DAX will on some level feel the impact. For details, please see the economic calendar.

DAX: Daily

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---Written by Paul Robinson, Market Analyst

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