The DAX dropped heavily this morning, its biggest decline in nearly a week. Data showed that private-sector activity growth in Germany — Europe’s largest economy — has softened slightly in April. German Manufacturing PMI figures hit a two-month low of 51.9, missing expectations of 53 and the German Service PMI figures reached a three-month low of 54.4, below a projection of 55.3. Some economists have questioned whether the effects of ECB QE are bearing any fruit as the Manufacturing PMI figures for Europe were also down at 51.9 vs expectations of 52.6. However, although the data for April reflected weaker activity in France and Germany may be seen as a worrying development, one must bear in mind it has been offset by a better performance in periphery countries which returned to levels last seen in August 2007.
The disappointing figures further enforce comments from ECB Chief Economist Peter Praet this morning. He said that “Accommodative monetary policy and determined structural reforms need to go hand-in-hand.” This means that whilst the European Central Bank are playing their part with loose monetary policy by way of QE, Governments must now start to play their part and implement firmer structural policies. This could be in the form of better investment incentives or the ease in which firms can do business – see the full article here.
Looking at the Hourly chart for the DAX below, one can see the 11840/11860, mentioned a key buying zone in yesterday’s article, held up for the most part with price closing below this level on only two of the hourly candles. However momentum was not strong enough to get the price through the 11927 with any conviction and gyrated above and below the Hourly 100 moving average (blue line in the chart below). The 11775/11750 zone, also noted as a key buy zone which did hold as the last stand yesterday has finally been penetrated in trading today.
(click to enlarge)
CONCLUSION – BEARISH
The DAX has tanked today, it has already travelled 250 pips far beyond the 22 day average of 207 pips. There have been four trading days over the course of the last month with price moving in excess of 300 pips, notably last Friday – 385 pips. So the potential liquidity for more downside is there, whether or not that will happen in trading today is the question. What we do know is that market sentiment is bearish after the PMI figures and anxiety looms over the future of Greece. From a technical perspective the price is not only below the Hourly 200 MA (green line in the chart above) but firmly below the Hourly 100 MA. Resistance that lies ahead for bears will be be clearing through 11700, next up the lows from Friday at 11631, then finally the 11606/11595 level. This area has not been tested since the beginning of March so if the DAX can muster more movement to the downside, do not be surprised to see a huge bounce at this area as bulls step into the market with easy to define risk.
For bulls, opportunities lay against the 11595/1606 level or on a break back above the Hourly 100 MA currently at 11874 using the 11840/11860 as a line in the sand.
For bears, opportunities lay on a break of 11700, shorting retracements into the 11750/11775 zone and finally into 11840.
Bearish targets :-
- 11696
- 11653 (Daily S2 Pivot)
- 11600 (11606/11595 zone not breached since beginning of March)
Bullish targets :-
- 11840 (Key zone & close to Hourly 100 MA)
- 11912 (Daily Pivot Point)
- 11946 (Daily High)