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DAX & CAC Technical Outlook Remains Bearish, Eyeing Big Support Test Soon

DAX & CAC Technical Outlook Remains Bearish, Eyeing Big Support Test Soon

Paul Robinson, Strategist

DAX/CAC Technical Highlights:

  • DAX remains a target for sellers below recently broken support
  • Neckline down near 11600 next objective, very important support
  • CAC poised to trade lower, with a gap-fill and ~5050/000 targeted

For the intermediate-term fundamental and technical outlook for the DAX & Euro, check out the Quarterly Report.

DAX remains a target for sellers below recently broken support

Last week, the DAX broke 12104, continuing weakness out of the previously developing descending wedge (building since May). So far, the bounce has been uninspiring and set to lead to further weakness as long as momentum doesn’t pick up and take price back through the aforementioned level on a closing basis.

Looking lower, there isn’t any meaningful support until the March low and neckline of the head-and-shoulders pattern dating back to June of last year. This puts support in the zone of 11726 down to roughly 11600.

That will be a very important test should we see it soon, as not only are Euro-zone equities weak relative to the U.S. markets (which could be on the verge of rolling over), the 15-month-long head-and-shoulders formation suggests a very large drop/bear market will be in store should the pattern exert its full bearish potential. Based on the height of the formation a drop into the 9000s or worse is in the cards.

For now, the market is trading weak and below prior support (now resistance, ~12104) and above the next level of support (~11726/11600). On that, traders operating from the short-side of the tape continue to have the upper hand.

DAX Daily Chart (Sub-12104, has neckline targeted)

dax daily chart, eyeing 11726/11600

For market sentiment and to learn more about how to use it in your analysis, check out the IG Client Sentiment page.

CAC poised to trade lower, with a gap-fill and ~5050 in mind

The CAC is trading below the June 2016 trend-line and at the bottom of a similarly shaped wedge as to the one recently seen in the DAX. A sustained break below last week’s low will have a clean new swing-low from June in place.

Next up on weakness is the big gap from April from 5213 down to a fill of the gap at 5141. Beneath there big support arrives in the vicinity of 5050, with it extending down to the August 2017 low just under 5000. This area is effectively the equivalent of the DAX’s neckline, making it a major level of support.

CAC Daily Chart (Gap, ~5050/000 eyed)

cac daily chart, gap, 5050/000 eyed

For live weekly updates on the DAX, CAC, and other indices, join me live on Tuesdays for ‘Indices and Commodities for the Active Trader’. Also, check out this piece on how to trade the DAX.

Forex & CFD Trader Resources

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at@PaulRobinsonFX

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