Dax index forecast: Bullish outlook despite recent setback
Last week, the European Central Bank (ECB) delivered another rate hike part of the current monetary policy tightening cycle. However, markets interpreted it as a dovish hike, meaning that the central bank signaled that it was likely the last hike of the cycle.
Therefore, the euro tanked on the news. But so did the stock market, to the surprise of many.
The ECB should have triggered a rally in the equity market by signaling the possible end of the tightening cycle. Only it didn’t, and the answer comes from the tight correlation between European and US stocks.
As US stocks went nowhere, awaiting the Fed’s decision, European stock market traders ignored the ECB announcement.
In particular, the Dax index in Germany has been in a tight consolidation area since August. Sure enough, the bias looks bearish here, given that it cannot break above 16,000 points.
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However, while moving with a weak tone, German stocks hold above critical support area. While there, the path of least resistance remains the upside.
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A move above 16,000 puts bulls in controlCopy link to section
The Dax index currently trades at an area that provided resistance in the past. According to the interchangeability principle, the same area should act as support.
It does. This is what keeps bulls alive.
If bulls manage to push above 16,000 points, it means that the triangle acted as a continuation pattern. Such triangles form at the end of complex corrections, and the price action is usually part of a strong trend.
So, what may trigger a bullish move?
As mentioned earlier, the US stocks lead. Therefore, a bullish trend in the US could easily cause a move above the critical 16,000 points for the Dax index.
Summing up, Dax moved in tight ranges during the summer. A triangular consolidation is evident, and while above support, a bullish breakout is favored.