DAX in oversold bounce from key level
Global stocks have bounced sharply off their overnight lows. But the lack of any significant bullish catalysts makes me wonder whether the recovery will hold. For now, the major indices are displaying hammer candles or similar bullish-looking patterns on their daily charts. Let's see if the second half of the day will encourage some profit-taking and a return to the bearish trend, or whether the recovery will hold into the close.
Sentiment has remained broadly bearish ever since those big central bank meetings last week. In particular, the sell-off started noticeably when the European Central Bank warned of more rate increases at the pace of 50 basis points, adding to a hawkish tone from the Federal Reserve that had met the day before.
While one can argue that the markets have now digested those hawkish central bank meetings, inflation remains uncomfortably high in Europe for investors to turn decidedly bullish.
European (and global) markets face a bumpy road ahead as high inflation continues to hurt consumer pockets and, in turn, company top and bottom lines.
Among the more interesting European indices is the DAX.
We last looked at the German DAX on December 15 when it had just broken some key support levels after creating a false break reversal. We mentioned then that the index was likely heading towards 13700. As it turned out, not only did it reach that level, but it has bounced strongly from around that area.
At the time of writing, the DAX had rebounded back to the previous support/resistance area around the 13900-14000 range. If the bears want to maintain some control they will have to defend their ground here, otherwise we could see the onset of a bigger recovery towards the base of the break down.
But given the overall downward price action in recent days, and a weak investor sentiment, we would proceed with extra care on the long/bullish side from here. The risks are still skewed to the downside. This could just turn out to be an oversold bounce at support.
By Fawad Razaqzada on behalf of FOREX.com
Sentiment has remained broadly bearish ever since those big central bank meetings last week. In particular, the sell-off started noticeably when the European Central Bank warned of more rate increases at the pace of 50 basis points, adding to a hawkish tone from the Federal Reserve that had met the day before.
While one can argue that the markets have now digested those hawkish central bank meetings, inflation remains uncomfortably high in Europe for investors to turn decidedly bullish.
European (and global) markets face a bumpy road ahead as high inflation continues to hurt consumer pockets and, in turn, company top and bottom lines.
Among the more interesting European indices is the DAX.
We last looked at the German DAX on December 15 when it had just broken some key support levels after creating a false break reversal. We mentioned then that the index was likely heading towards 13700. As it turned out, not only did it reach that level, but it has bounced strongly from around that area.
At the time of writing, the DAX had rebounded back to the previous support/resistance area around the 13900-14000 range. If the bears want to maintain some control they will have to defend their ground here, otherwise we could see the onset of a bigger recovery towards the base of the break down.
But given the overall downward price action in recent days, and a weak investor sentiment, we would proceed with extra care on the long/bullish side from here. The risks are still skewed to the downside. This could just turn out to be an oversold bounce at support.
By Fawad Razaqzada on behalf of FOREX.com
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