Yesterday, markets were waiting on the ECB press conference from Cyprus at 13:30 GMT. Traders scrutinising every word from the European Central Bank’s President Mario Draghi. The ECB showed its full commitment to their QE program – Draghi confirmed there would be purchases of Bonds with a negative yield as low as -0.2% , which is tantamount to paying money to hold bonds. This is a strong stance when contrasted to the U.S. Federal Reserve’s QE programs over the last few years which have involved buying US Treasuries with positive yield. Needless to say, the markets rallied off the back of Draghi’s comment along with increased growth projections of 1.5 per cent for this year, 1.9 per cent in 2016 and 2.1 per cent in 2017.
The DAX hit resistance at 11532 . This was just under the 11541 level, the extension in yesterday’s trading range (see yesterday’s post here – http://theshielreport.com/2015/03/05/dax-intraday-levels-5th-march/). As also mentioned in yesterday’s article, it would be a surprise to see an extension beyond 153 pips for the day ahead of the Non-Farm Payrolls number released later today.
Looking at the 5 minute chart below, one can see that price has managed to stay above it’s 100 moving average (blue line in the chart below), and has met firm resistance in the 38.2 – 50% Fib retracement zone (after Draghi’s positive comments) which is at 11489 – 11476.
For the bulls, the 11532 level needs to be taken out. For the bears, the 11476 will be a key level to watch. This is is the 50% retracement level but also the Daily Pivot. If it pierces this level, it will need to take out Wednesday’s high of 11467 and close below the 61.8% retracement level of 11463 for the market to start trending lower.
CONCLUSION – WAIT UNTIL 13:30 GMT
All eyes are on the Non-Farm Payrolls report out later today at 13:30 GMT. Some pundits are already blaming bad weather and factoring in a poorer than expected NFP number. However, the ISM Non-Manufacturing can be a good indicator of how the Non-Farm Payrolls number will print. The last reading came in stronger at 56.9 vs an estimation of 56.5.
One thing with Trends is that they are relentless. They keep going – shaking out the weak hands, taking out stops and ploughing on. That certainly is the case for the U.S. Dollar looking back over the last few months. It has been a bulldozer, taking the hitbacks of negative U.S. data – from much worse than expected December retail sales (-0.9% vs -0.1%) to a decline in Q4 GDP (2.6% vs 3%) . Yet the Dollar Index still continues higher. The DAX has a correlation with the Dollar Index. So as the Dollar has taken the hit backs and kept rising, so has the DAX.
What I will say though is that the DAX is very overextended from it’s 100+200 moving average when looking at the Daily chart. Like an elastic band being pulled away, it will eventually snap back. I would recommend trading the bullish side with great caution.
Bullish targets on a break above 11532 :-
- 11615 (Daily R2 Pivot + Weekly R2 Pivot)
- 11640 (Daily extension of trading range – avg.last 22 days is 152 pips)
- 11700 (Daily R3 Pivot)
Bearish targets on a break below 11463 :-
- 11376 (Daily extension of range)
- 11338 (Daily S2 Pivot)
- Hourly 200 moving average (currently at 11326)