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What’s inside:

  • DAX has a volatile range developing around key intermediate to long-term levels
  • Firm risk appetite at odds right now with a strong euro
  • In keeping it simple we will look to a confirmed breakout and go with momentum

See the fundamental outlook for the DAX & Euro in the DailyFX Trading Forecasts.

From one day to the next the DAX has been volatile, flip-flopping back-and-forth between strong and weak. Given where it’s currently trading that makes some sense as the market is caught between a few important lines of support and resistance. Running at the low-end of the recent range is the old record high in June and the underside of the consolidation-period during October. Running right through the middle of the range and to the top-side are long-term trend-lines extending since 2000 and 2015.

The volatile two-way trade could continue for a little while longer before resolving itself. Which way that resolution takes shape at this point is anyone’s guess. But there are a couple of factors at play here. The first, general risk appetite for stocks (especially in the U.S.) has been strong. At this juncture in the year, seasonality is favorable for a bid to remain in stocks until the calendar flips to 2018. That is the positive.

The potential negative (or positive if things change) for the DAX, as is the case for all Euro-zone equities, is a strong end-of-the-year move out of the euro. A possibility which is looking increasingly likely (discussed this weekend in the weekly euro tech forecast). Perhaps the strongly negative correlation falls apart (as correlations can do without warning) or has minimal impact, but is certainly a risk; or, in the event the euro tanks a tailwind for German stocks could develop. Right now, we lean towards it having some type of impact, likely more negative than positive.

Looking at these cross-market factors can make for a complicated puzzle to piece together. In an effort to keep it simple, we’ll run with an eventual range-break; a daily close above 13209 or below 12847. Break higher, then the prior record high at 13525 will come into focus, break lower and the swing-high in July at 12676, the June 2016 trend-line, and the 200-day MA will become potential targets. Ideally, a little time elapses and a cleaner, more developed range develops before breaking; but in any event, we’ll just follow momentum and go from there.

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DAX: Daily

DAX daily chart

---Written by Paul Robinson, Market Analyst

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