DAX well placed to resume rally post 4th of July

The new financial year has kicked off on a more constructive note as clinical tests around Pfizer’s experimental vaccine for Covid-19 showed positive results, accompanied by a recovery in manufacturing PMI’s in Asia, Europe, and the U.S.

Charts (5)

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 4th 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.

DAX well placed to resume rally post 4th of July

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

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.