- European markets are likely to stay positive today, with US markets on holiday.
- Investor confidence has been boosted by receding French election fears and a potential Fed rate cut.
- As DAX breaks out, dip-buying is seen as the dominant trade.
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After Wednesday’s rally, the markets are likely to remain supported in Europe with the US out celebrating Independence Day. Dip-buying remains the dominant trade and after the recent consolidation, it looks like the German index has set the stage for a fresh rally. Concerns about French elections have receded somewhat, and investors appear more confident that the US Federal Reserve will cut rates in September.
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What factors are driving the markets right now?
UK investors will be casting their votes in the general elections, the outcome of which looks to be a foregone conclusion with the Labour set to sweep to victory and the Conservatives getting annihilated. In Europe, the focus is turning to the second round of voting in French elections.
Here, a concerted effort by parties determined to prevent Marine Le Pen’s far-right National Rally from gaining power picked up steam ahead of Sunday’s legislative election, with prominent political figures cautioning voters that their choice would significantly impact France and will have repercussions for the Eurozone as well.
Judging by the rebound in the and stock markets in the last few days, it looks like investors are confident that the National Rally won’t come to power. In addition, the June jobs report will be in focus on Friday after a raft of US macro pointers disappointed expectations, boosting bets that the Fed will cut rates in September.
DAX technical analysis and trade ideas
On Wednesday, the DAX rallied to break out of a descending triangle pattern it had been residing inside for the last couple of weeks or so to the upside. In the process, it took out at least two important levels, namely Tuesday’s high of 18286 and resistance around 18350. Within this 18286-18350, range we also had the resistance trend of the triangle pattern converge with the 21-day exponential moving average.
Given that several technical indicators all converged around that 18286-18350 area, this makes it a key support zone to watch for at least a bounce trade on any potential dips back into this area. A couple of objectives to target on the upside include 18651 – this being the most recent high formed before the latest drop – followed by liquidity resting above the all-time high circa 18900.
Despite ongoing macro concerns, going long on the dips remains the trade that has worked well so far in 2024. And that’s not just for the DAX, but also on the major US indices too, especially the tech-heavy . As traders, our job is to milk the trends as much as possible and not fight them.
Indeed, the DAX’s longer-term technical outlook remains constructive given that it has been consolidating well above its 200-day average and around its short-term 21-day exponential. The minimal pullback from the all-time high that was hit in May and the subsequent consolidation means that the DAX is now potentially ready to take off again, now that the consolidation has allowed the index’s oscillators like the RSI to work off their overbought conditions mainly through time than price action, which is always a sign of a healthy bullish trend.
On the other hand, if support doesn’t hold around that 18286-18350 area, then in that case we may see another dip back to key support around 18000-18050 area again. However, in light of this week’s bullish breakout this is not my base case scenario.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
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