DAX 30 Index, German Partial Lockdown, Coronavirus Cases, IGCS – Talking Points:
- Equity markets lost ground during APAC trade as gridlock in stimulus negotiations weighed on market sentiment.
- Rising Covid-19 case numbers in Germany may weigh on regional market sentiment in the near term.
- DAX 30 index at risk of a short-term pullback as prices probe a key inflection point.
Asia-Pacific Recap
Equity markets slipped lower during Asia-Pacific trade, as disappointing US jobs numbers and prolonged fiscal stimulus negotiations notably weighed on market sentiment.
Australia’s ASX 200 index fell 0.61% and Japan’s Nikkei 225 nudged 0.39% lower. China’s CSI 300 index plunged 1.07% on escalating US-China trade tensions, as the Trump administration issued an executive order to remove several Chinese firms from US exchanges.
In FX markets, the cyclically-sensitive AUD and NOK largely outperformed while the haven-associated US Dollar continued sliding lower against its major counterparts.
Gold prices held relatively steady as yields on US 10-year Treasuries nudged 1 basis point higher.
Looking ahead, preliminary US consumer sentiment data for December headlines the economic docket alongside PPI figures for the month of November.
Rising Covid-19 Infections to Weigh on DAX 30
As mentioned in previous reports, the extension of Germany’s nationwide ‘partial’ lockdown – implemented at the start of November – may cap the benchmark DAX 30 index’s potential upside, as cases of the novel coronavirus continue climbing.
With infections tripling since the start of October, Chancellor Angela Merkel and the premiers of Germany’s 16 states opted to protract the current measures until December 20.
However, the notable tightening of restrictions has proved relatively ineffective at driving case numbers lower, with the 7-day average of infections surging above 20,000.
Indeed, Merkel has stressed that “case numbers have stagnated at far too high a level [and] we undoubtedly have some difficult months ahead of us again”.
The Chancellor stated that for restrictions to be loosened, the seven-day incidence rate per 100,000 must drop back below 50 and stay there on a consistent basis. It currently sits at a record 156.
With that in mind, it seems rational to expect that tighter curbs may have to be enforced in the short-term. In fact, Merkel’s chief of staff Helge Braun has flagged the possibility of restrictions being extended until March.
Therefore, the DAX 30 could lose ground in the coming days if the number of infections remains stubbornly elevated, as investors begin to price in more stringent measures.
Source – Worldometer
DAX 30 Index Futures Daily Chart – Probing Key Range Resistance
From a technical perspective, the DAX 30 index could be at risk of a short-term pullback as prices struggle to overcome range resistance at 13350 – 13450.
Bearish RSI divergence, in tandem with a bearish crossover on the MACD indicator, suggest that path of least resistance may be skewed to the downside.
Piercing back below the yearly open (13126) on a daily close basis could ignite a downside push towards the trend-defining 50-day moving average (12868). Clearing that would probably open the door for price to challenge the support range at 12200 – 12300.
Alternatively, a daily close above the September high (13464) could neutralize near-term selling pressure and carve a path for price to probe the February high (13829).
DAX 30 index futures daily chart created using Tradingview
DAX 30 Index Futures 4-Hour Chart – Symmetrical Triangle in Play
Zooming into a four-hour chart hints at further consolidation ahead as the DAX 30 continues to oscillate within the confines of a Symmetrical Triangle.
However, the bias remains skewed to the downside as the RSI slips back below its neutral midpoint and price snaps back below the 100-MA (13269).
Breaching triangle support and the 38.2% Fibonacci (13206) could trigger an impulsive downside push back towards the 2020 open (13126), with a push below probably bringing the 200-MA into focus (12884).
Conversely, hurdling resistance at the 78.6% Fibonacci (13362) may generate a retest of the monthly high (13459), with a push above needed to bring the 100% Fibonacci (13633) into the crosshairs.
DAX 30 index futures 4-hour chart created using Tradingview
IG Client Sentiment Report
The IG Client Sentiment Report shows 39.28% of traders are net-long with the ratio of traders short to long at 1.55 to 1. The number of traders net-long is 14.52% higher than yesterday and 17.40% lower from last week, while the number of traders net-short is 8.51% lower than yesterday and 3.68% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests DAX 30 prices may continue to rise.
Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed DAX 30 trading bias.
-- Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss