Dax Technical Analysis 31/01/2017

Good morning traders!

January 2017 draws to a close and the headlines have been unfortunately dominated by the US President. But in summary, the Dax has had a pretty bullish month adding, at the time of writing, around 260 points since the beginning of the year (down approximately 170 points from the highs). During both December and January, the Dax is now up over 1000 points. We started January strong in week 1, had a couple of weeks of indecision while we were ranging and then had our breakout last week. This week is showing a threat of retracement.

Yesterday we opened at 11810 and found lows of 11660, which is an interesting level, before closing around 100 points down at 11713, which is also where we are currently trading. Economic concerns from Greece resurfaced yesterday and this may well have contributed to the continuation of the pullback. The reason 11660 is interesting is because it falls with the retracement zone, which you can see on the H1 chart below. So for bulls that missed the move from a few days ago (like me), this technical pattern can provide a potential entry to capture the next move. But I have not really seen a signal to buy, volume hasn’t really spiked, there is no divergence of note, so I will remain patient.

Today, intra-day, we gapped lower but did not quite test the low of yesterday, price recovered the losses and continued on to tag the daily pivot, 11728 before news came out that EU inflation has increased to 1.8%. This raises a few questions regarding the easy monetary policy, because it’s the highest level since 2013. Analysts believe that higher inflation will ultimately affect growth and therefore the future earnings expectations of companies in the Dax. You could argue that such a strong release is actually bearish for the Dax, because it will likely lead to a taper tantrum down the line when Draghi decides to reign in the fiscal stimulus. Conversely you could argue that these levels are on track and the plan will continue as normal. But the reaction, right now, is bearish with 30 points dropping from the market.

11630-11650 is an interest zone to watch for a reaction.

11575 is also an interesting level for bulls to buy.