Analys från DailyFX
DAX: Relative Weakness Makes it a Target for Sellers
What’s inside:
- DAX lagging behind other global markets
- Resistance levels noted just ahead
- Relative weakness makes it a short candidate
The notion that indices across the board would experience small, short-lived bounces has been generally wrong – looking at you FTSE, which has done a full reversal off the ‘Brexit’ panic low, and the SP 500 which has torn through upside levels in its own right.
Other key global markets – Japan and Europe – have had been far more subdued in their attempts to take back the Friday/Monday swoon. When looking across the spectrum of world markets and seeking out what is a better sale and a better buy from a relative strength standpoint, the DAX is sticking out as the obvious laggard.
In regards to the disparity between the UK stock market and the rest of Europe, yesterday James Stanley wrote, “This raises the very legitimate question as to whether a Brexit scenario may bear more risk moving forward for the U.K., or the European Union that they’re choosing to leave behind.” (Check out the full commentary here.) Indeed, a legit question to ask.
In any event, the DAX is one weak market along with the Nikkei which hasn’t experienced all that much of a recovery, either. The DAX and Nikkei hold an impressive 1-year correlation of 90%. While all major global markets are correlated, this is extreme. But it makes sense when you look at the similarities in monetary policy adopted by the ECB and BoJ.
We have noted lately that the big picture downtrend off the 2015 record highs remains intact, and will continue to do so as long as it doesn’t breach the upper parallel off the high created last year. If it does, then the past year+ could have been one big bull-flag, but we’ll cross that bridge if it ever needs to be crossed.
Looking at the shorter-term daily chart, relative weakness aside, the trend structure is sloppy, but smacks more bear than bull with a sequence of lower lows and lower highs in place.
DAX (Ger30) Daily [Weekly]
Yesterday, the DAX managed to recapture the June 16 low, but if we dial in even closer to the intra-day time-frame we can see there is a reaction zone in the ~9640/80 vicinity, which it challenged this morning. A move above there will bring the May bottoms into play in the 9730/820 zone.
2-hour
Traders will want to take note of how price action behaves around these reactions zones for clues as to whether the bounce in the DAX is likely to fizzle out, or whether a larger rebound should be expected.
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—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX, and/or email him at probinson@fxcm.com with any questions or comments.
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD 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 EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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