The DAX continued its rally from Friday smashing through the 12,000-point level for the first time in trading today. This aided by positive news from Greece’s €580 million installment due to the IMF today will be paid and the fact investors are looking for yield. The ECB QE programme has weakened the euro and pushed bond yields to new lows, driving investors to seek the better returns available from the stock market.
So far markets have remained largely sanguine ahead of the US Federal Reserve’s two-day meeting starting tomorrow. All eyes will be on Fed chairwoman Janet Yellen with reference to ‘patience’. Will they raise interest rates this year? Possibly as soon as June? Many market commentators are calling for low interest rates to remain on the table for the foreseeable future. The Dollar strength over the last few months has been somewhat of a bulldozer, smashing all negative news out of its way and continuing to surge higher. This, is the very reason some suspect rates may be on hold. If the Fed raise rates, this will only fuel the Dollar rally – which will ultimately hamper economic growth for the US. making imports more expensive for example. However, the Fed is known to pull surprises out of it’s policy hat – in previous meetings referencing to ‘tools’ they have available. It wouldn’t surprise me for the Fed to raise interest rates whilst simultaneously raising import tariffs for example. This would be tantamount to devaluing the dollar by a similar amount as to keeping rates low or printing more money. Always be prepared for surprises from the Fed.
Looking at DAX Hourly chart below, one can see the market is overextended from its 100 moving average price (blue line) and 200 MA (green line). If price sells off from these lofty levels expect strong support at these areas and by those marked in yellow. These areas are easy to define risk levels for bulls and will warrant strong buying as a result.
(click to enlarge)
CONCLUSION – BULLISH
For bulls, the market is somewhat extended in trading today already moving 232 pips ( 12133 at time of writing). This is much higher than its average trading range over the last 22 days which comes in at 157 pips.
Look for pullbacks into the current Fib Zone (yellow box in chart below). Move Fib levels if market drifts above 11240. The 100 moving average (blue line in the chart below) on the 5 minute timeframe would constitute a better buying opportunity. As would the 200 moving average (green line). This level currently is at 11990, close to Friday’s high of 11975, where strong support should also reside.
(click to enlarge)
Bearish targets :-
- 100 MA on 5 min (currently sits at 12038)
- 12033 (Daily R1 Pivot)
- 11975 (Friday’s high)
Bullish targets :-
- 12194 (4 hour R3 Pivot)
- 12200
- 12267 (Daily R3 Pivot)