DAX 30 Index, Coronavirus Restrictions, Vaccines, German Lockdown, IGCS – Talking Points:
- Equity markets broadly gained during APAC trade as investors cheered the prospect of additional fiscal support out of the US.
- The threat of extended lockdown measures in Germany may begin to weigh on regional market sentiment.
- The DAX 30 index seems poised to extend recent gains as price holds constructively above key support.
Equity markets broadly gained during Asia-Pacific trade after President-elect Joe Biden announced a larger-than-expected $2 trillion relief package. Australia’s ASX 200 index rose 0.43% while Japan’s Nikkei 225 climbed 0.85%. China’s CSI 300 index plunged 1.93% after the outgoing Trump administration signed an order strengthening a November ban preventing US investments in firms associated with the Chinese military.
In FX markets, the cyclically-sensitive Australian and New Zealand Dollars largely outperformed while the haven-associated Japanese Yen and US Dollar lost ground against their major counterparts. Gold prices slipped marginally lower as yields on US 10-year Treasuries moved 2 basis points higher.
Looking ahead, the release of the European Central Bank’s meeting minutes for December headline the economic docket alongside jobless claims figures out of the US.
Merkel Warns of Extended Restrictions
The possible extension of coronavirus restrictions in Germany may begin to weigh on regional risk appetite, as infection numbers continue to climb despite the imposition of a nation-wide lockdown at the end of November.
Chancellor Angela Merkel has warned that harsh curbs may have to remain in place until Easter after the highly transmissible mutation ,currently wreaking havoc in the UK, was detected in Germany. Indeed, Ralph Brinkhaus – the head of the ruling CDU/CSU group – stressed that “if this virus really hits harder, then the lockdown measures will have to be sharpened”.
Source - Worldometer
Given that the 7-day moving average tracking infections continues to hover just shy of 20,000 despite the nation being placed under strict lockdown measures, additional tightening for a more extended period of time seems almost inevitable.
That being said, investors may dismiss these worrying concerns on hopes of a swift return to a level of normalcy in light of the approval of the Covid-19 vaccines developed by Pfizer and BioNTech, and Moderna.
Nevertheless, a degree of caution should be maintained in the near term as the reality of a prolonged period of harsh curbs may begin to gnaw at risk appetite and in turn weigh on Germany’s benchmark DAX 30 index.
Source – Our World in Data
DAX 30 Index Futures Daily Chart – RSI Eyeing Push into Overbought Territory
From a technical perspective, further gains seem to be in the offing for the DAX 30 index, as prices remains constructively perched above key support at the February 2020 high (13829).
Bullish moving average stacking, in tandem with the RSI holding firmly above 60 and eyeing a push into overbought territory, hints at swelling buying pressure.
A daily close above the record high set on January 8 (14138) would probably ignite an impulsive topside push towards the 61.8% Fibonacci expansion (14316) and psychological resistance at 14400. Breaching that likely carves a path for buyers to drive prices towards the 78.6% Fibonacci (14673).
Alternatively, falling back below range support at 13750 – 13850 could ignite a short-term pullback to the 34-day exponential moving average (13560).
DAX 30 index futures daily chart created using Tradingview
DAX 30 Index Futures 4-Hour Chart – Rising Wedge in Play?
Zooming into a four-hour chart reinforces the bullish outlook depicted on the daily timeframe, as prices storm away from the trend-defining 50-MA and the February high (13829).
With a bullish crossover taking place on the MACD indicator, and the RSI climbing back above 50, the path of least resistance seems to favour the upside.
However, the index appears to be carving out a bearish Rising Wedge pattern which could ultimately trigger a significant downside reversal.
Nevertheless, if price remains constructively positioned above the 50-MA, and wedge support remains intact, further gains seem likely in the near term.
Clearing the 50% Fibonacci (14010) would probably carve a path for price to probe the yearly high (14138), with a convincing push above bringing the 78.6% Fibonacci (14258) into the crosshairs.
Conversely, plunging back below wedge support and the January 13 low (13870) could ignite a pullback towards the sentiment-defining 200-MA (13525).
DAX 30 index futures 4-hour chart created using Tradingview
IG Client Sentiment Report
The IG Client Sentiment Report shows 31.21% of traders are net-long with the ratio of traders short to long at 2.20 to 1. The number of traders net-long is 4.66% higher than yesterday and 66.67% higher from last week, while the number of traders net-short is 4.86% higher than yesterday and 3.24% lower 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 more net-short than yesterday but less 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