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DAX Bearish Outlook Set to Revive Soon

DAX Bearish Outlook Set to Revive Soon

What’s inside:

  • DAX presses resistance, but continuing to fail
  • Overall price action off the June high suggests more weakness to come
  • French election gap-fill, sub-12k initial down-side objective

What will drive European equities during the 3rd quarter? See our Quarterly Forecast here.

In last week’s post, it was noted that the DAX was trading at a solid level of resistance which offered a quality spot to enter for those looking to establish a short position. The turn lower on Thursday was encouraging for the shorts as the French election-gap quickly came into view. But since touching off near the 6/30 low, the past couple of days the German index has pressed back up against the resistance zone in the vicinity of 12486/537 (the early-morning high was 12539, close enough).

As long as resistance holds in place, so does a bearish bias. Overall, price action isn’t acting very well since dumping off the record high last month. Strong down-moves followed by an inability to retrace are typically viewed as a consolidation period prior to seeing another leg lower. Then there is that glaring election-gap, too, which looks likely to be filled sooner rather than later. The CAC 40 has been trading in its gap, and also looks poised to fill soon once its own period of consolidation is over.

It’s still very early, but if today’s high holds and the DAX holds onto a reversal-day then we may have seen the high of the consolidation phase. In this case, a push back to the low-end of the recent range and worse becomes the likely scenario. A drop below 12320 brings the gap at 12289 quickly into play. Once in the gap, it’s game-on for the gap-fill. As we said the other day, it could happen all at once or take its time as the French index is. Either way, once in, look for it to fill down to 12048 at the least. The price swing-low we’re looking to as support clocks in at 11941.

Changing this view will require a strong push above the beforementioned resistance zone. Even then it won’t put a totally bullish undertone in place, but will sap some of the bearishness out of the current set-up.

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.