Friday's selloff (blue arrow - left chart) has positioned FXCM's DAX CFD, the GER30, between the lower blue and red bands in its bearish zone. However, this resulted in a short-term oversold condition on the hourly chart (green rectangle). This downside froth prompted support for the GER30 at its S2 pivot, as the oscillator normalised. However, bounces may prove suspicious, given the nature of the weekly chart below.
The GER30 weekly chart has robust overhead resistance above it, around the 14,800-14,900 area (red shaded horizontal). This critical level coincides with the 61.8% retracement of the index's previous impulse move down, implying a confluence of factors acting against price appreciation. Furthermore, last week's candle (blue arrow) indicates a capitulation by the bulls, who took the price up to the high of 14,627 before losing control to the bears. As a result, the DAX closed down for the week.
Global risk markets, including the DAX, are grappling with central banks' hawkishness. Last week, Fed Chair Powell supported moving faster on hiking interest rates to control inflation, reinforcing a likely 50bps move in May. Moreover, the probability for a 75bps increase in June is over 80% as per fed funds futures. This aggressiveness is also reflected in the German Bund, which yields 0.9%.
The higher rates make equities less attractive as opportunity costs and risk premiums continue to rise.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.