DAX well placed to resume rally post 4th of July

The re-emergence of Covid-19 vaccine headlines after a lengthy absence providing relief following the last two weeks of June as a sharp increase in new Covid-19 cases captivated traders' attention.

On several occasions it appeared as if equity markets and other risk assets were on the verge of capitulation, only to back away from the cliff edge in subsequent sessions.

The latest snapback following Monday's reversal, reminding me of a trading adage, if a market can’t go down on bearish news, it is probably going higher, if only to test the resolve of the shorts.

This provides some support to an idea from earlier this week that outlined a determination to sell a bounce in the U.S. dollar index, the DXY into the end of this week, to take advantage of a possible rally in risk assets, after the July 4^th long weekend here.

Expanding on this thematic, outside of the currency space we also see a forthcoming opportunity in the German stock index, the DAX.  As can be viewed on the chart below the DAX has remained resilient in recent weeks, holding and consolidating above the trendline support coming from the March 7969.5 low.

Providing the DAX continues to hold above the trendline support and recent lows, let’s say 11900, it would set the scene for the DAX to rally early next week.

Specifically, a break/daily close above the downtrend resistance at 12400 would be a positive development and the trigger to consider opening longs in the DAX. The positive bias would then be magnified on a break above the 12591 high which would then open up a retest and break of the 12867 high.

Keeping in mind that should the DAX close below the 11900 support area it would negate the short term bullish bias and warn of a pullback towards support 11300/200 area before the uptrend resumes.

Source Tradingview. The figures stated areas of the 2nd of July 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation