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DAX Remains Global Laggard, Favored Market for Shorts

DAX Remains Global Laggard, Favored Market for Shorts

What’s inside:

  • DAX stuck below strong resistance over 12300 following break of H&S top
  • Currently in a range-bound trading environment
  • Overall technical landscape favors shorts

Find out in our Q3 Forecast what’s driving the DAX and Euro.

The other day we were discussing the inverse relationship between the DAX and the euro and suggested that it may be possible if the euro declines we see some life come into the DAX. It was also said that while it’s a relationship worthy of attention it can weaken, leaving us without a reliable guide. So far, we’ve seen a little euro weakness and we’ve also seen some risk aversion come into global markets with tensions with North Korea rising, which has resulted in a declining DAX. The risk-off environment at this juncture is very modest at this time, however. Very. You’ll know real risk-off when it hits. This isn't it. Yet.

The technical outlook for the DAX remains the same – trending sideways to lower within the context of a triggered ‘head-and-shoulders’ top. Even though just a couple of days ago the market was trading above the neckline of the pattern, the 12300/40 region has been very difficult to overcome. On any attempt from here to break on through will also require a breakout above the trend-line running down off the June high. A lot to overcome before possibly turning the outlook bullish.

This morning we are trading right near several lows created over the past couple of weeks just below 12100 (12092 is the precise low). We could bounce around between resistance in the 12300-area and roughly 12100 in a range-bound trading environment. But if we break below 12092 look for not only the French election gap to fill at 12048, but for a drop to develop below 12000. Levels to watch come in at 11941, 11906(200-day) and then 11850.

The bottom line is the DAX has its work cut out for it to improve its outlook for the bulls, but doesn’t necessarily mean it will be an easy road for the bears. As long as the DAX stays below beforementioned resistance just over 12300 then the trading bias is from the short-side with in mind we’ll have a range-bound market environment with a negative tilt to it and the possibility of a breakdown looming.

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.

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