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German Dax Faces Technical Headwinds as Critical Resistance Firms

German Dax Faces Technical Headwinds as Critical Resistance Firms

Tammy Da Costa, Analyst

German Dax Outlook:

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Equity futures have taken a breather ahead of Thursday's US CPI data as investors awaited Fed Chair Jerome Powell’s speech. With Friday’s equity rally driving Dax futures back above 14000, an extension of the upside move allowed bulls to drive prices higher before peaking at 14894.

Despite central banks reaffirming their intentions to continue to hike rates despite rising risks of a global recession, technical levels have provided an additional catalyst for price action.

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After rebounding off the October low of 11829, the performance-based Dax enjoyed nine-weeks of gains before stalling at the November high of 14618. With the formation of a doji candle on the weekly chart suggestive of indecision, the zone between 14618 and the December high of 14682 remains key for the imminent move.

Dax Futures Weekly Chart

Graphical user interface, chart  Description automatically generated with medium confidence

Chart prepared by Tammy Da Costa using TradingView

With the 14829 - 14833 zone providing support for Dax futures on numerous occasions throughout 2021 came into play in January and February last year. As the onset of the war in Ukraine and shift in sentiment fueled bearish momentum, the technically significant zone continues to provide a firm barrier of resistance that could limit the upside move.

If buyers are able to hold above this zone, a retest of the current monthly high and a move hold above 14900 is necessary to drive prices back towards the March 2022 high of 14945. From there, the 15000 psychological level looms with the 88% Fibonacci of the 2020 - 2021 move holding at 15296.

Dax 40 Daily Chart

Chart  Description automatically generated

Chart prepared by Tammy Da Costa using TradingView

On the contrary, if prices fall below 14618, a break of 14500 and below 13980 could see the next level of support forming at the December low of 13795.

Dax Positioning Reaches Extremes – Bullish Sentiment Persists

Graphical user interface, chart  Description automatically generated
Germany 40 Mixed
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -9% -13% -12%
Weekly -26% -2% -7%
What does it mean for price action?
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We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Germany 40 prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Germany 40-bullish contrarian trading bias.

--- Written by Tammy Da Costa, Analyst for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707

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

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