After an eventful week between the ECB Press Conference on Thursday with President Mario Draghi clarifying details of its Quantitative Easing program announced back in late January, to the US Employment report released on Friday, markets are now figuring out which way to go.
On Friday the DAX was consolidating ahead of the all important Nonfarm Payrolls report released at 13:30. Expectations were for a number of 235,000 or below due to poor weather. As mentioned in my post on Friday (http://theshielreport.com/2015/03/06/dax-intraday-levels-6th-march/), expect a higher number based on ISM Non-Manufacturing. The NFP did indeed come in much stronger, with an increase of 295,000 added to the U.S. economy. This stoked expectations that the Federal Reserve are still on course to raise interest rates this year. After the DAX edged higher, it eventually topped out at the key psychological level of 11600 and followed the lead of the DOW and S&P – heading lower. Price found resistance in the 11500 area.
Looking at the 5 minute chart below, the DAX has bounced around in trading today. Testing the 11528-11538 resistance area from Friday (prior to NFP release), breaking back down through the 100 & 200 moving averages (blue and green lines in the chart below), before finding support at 11460. That price comes in near the 11467 level, which is an important level to break and stay below, as it was Wednesday’s high before Draghi spoke on Thursday.
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So where here from now? It’s always good to go back to the higher time frames to get some perspective on where price currently is.
Looking at the Monthly chart below, one can see the DAX is once again entering into overbought territory when looking at the Relative Strength Index. But the RSI is only an indicator and a lagging one at that. However, it is interesting to see that the DAX seldom breaks over the 75-85 area before price crashes lower.
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When looking at the Daily chart, one can see how far extended price is from its 100 and 200 moving average (blue and green line in the chart below).
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So whilst the Monthly and Daily charts indicate price is due for a big correction soon, I would need to see confirmation on the 4 hourly chart. Looking at the chart below, it is easy to see the trend channel which has emerged since the announcement of QE by the ECB on January 22nd. This is the chart I will be looking at in the medium term. If price comes back down into the lower trendline of the channel (yellow box) and price fails to hold, I would deem this as a bearish signal. With focus on price then testing the Daily 100 & 200 MAs.
(click to enlarge)
CONCLUSION – NEUTRAL
For bulls price needs to take out the high from Friday at 11599 and move higher. For the bears price needs to close below 11467-11460 (Wednesday high/todays low). The average trading range for the last 22 days comes in at 153 pips. Todays trading range so far is 110 pips. So with an extension higher this would mean a target of 11614, just above Friday’s high. For bears the target would be 11419.
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Targets on break of 11599 :-
- 11614 (extension of daily range)
- 11640 (Daily R2 Pivot)
- 11681 (Daily R3 Pivot)
Targets on break of 11460 :-
- Hourly 100 MA (currently at 11428)
- 11419 (extension of daily range)
- 11369 (Daily s3 Pivot)