It was another volatile day for the DAX yesterday, seeing huge swings in price. The downward slide from Tuesday continued after consolidating during yesterday’s Asian session. Price collapsed an incredible 134 pips in just 25 minutes. Needless to say it found resistance at the 11190 level (see my post from Sunday with levels to watch for week http://theshielreport.com/2015/02/28/dax-the-week-ahead/) and moved back to the upside.
Hopefully any of you bears out there took some profits, and were limited with anymore losses on potential re-entries at higher levels due to easy to define risk levels – as stated in yesterday’s article (http://theshielreport.com/2015/03/04/dax-intraday-levels-4th-march-2015/). I also mentioned a close above the Hourly 100 moving average, then the bias will become bullish. Well, the price hasn’t looked back since. It is fast approaching it’s all time highs of 11467 as I type.
Will the market break through this key 11467 level or rebound from it?
There is a case for both bears and bulls. Bears will see the recent price action over the last few days as justified. A potential starting point to what looks like an overbought Indice. The market has priced in European Central Bank Quantitative Easing (money printing) they will say. The market is buying the rumour and selling the fact. One thing is for sure, there is a big divergence between price and momentum but if this will continue is another question. The bulls will see that the market still has strong momentum from a daily perspective, and the price action over the last few days has been what’s needed to push this flying carpet fueled by magic money higher!
The fact is we won’t really know how price will trend until the ECB President, Mario Draghi, speaks later today at 13:30 GMT. The ECB only has a handle of Monetary affairs. The Fiscal side is left to the Governments and how they play their part in structural reforms. Bundesbank President Jens Weidmann recently stated he is somewhat opposed to QE because he sees “excessive stimulus undermining the incentives for governments to act.” Draghi announced in January to buy 60 billion euros of assets per month through September 2016 or until officials see a “sustained adjustment in the path of inflation” towards its goal of just under 2 percent. That, is exactly, what the markets are looking for from today’s speech – whether or not Draghi will provide any clarity on this statement with relation to :-
- how the ECB will taper purchases as it nears its goal
- the extent to which it’ll buy bonds with negative yields
- how data on purchases will be made public
- how it’ll find enough assets to buy
- how to treat losses at national central banks from buying bonds with negative yields
CONCLUSION – WAIT UNTIL 13:30
Looking at the Hourly chart below, it’s clear to see the bulls are back in charge – for the time being. Depending on what is said, if the markets sell off, first look for a test of the Hourly 100 moving average (blue line in the chart below), currently sitting at 11369. If this level fails to hold, the next big target for the bears will be the Hourly 200 ma (green line in the chart below). If the price can manage to close below this level, then the next few days could turn very ugly for the DAX. Although price may extend on either a break of 11467 or rejection of 11467, there is the strong possibility markets will move only so far in trading today until the U.S. Non-Farm Payrolls report is released tomorrow.
Bullish levels on a break on 11467 :-
- 11541 (extension in daily range of 22 day average – 153 pips)
- 11568 (Daily R2 Pivot)
- 11615 (Weekly R2 Pivot)
Bearish levels on rejection of 11467 :-
- 11308 (daily range extension)
- 11260 (Daily S1 Pivot – close to Hourly 200 ma – price may pause here until US NFP)
- 11193 (yesterdays low)