DAX Daily Fundamental Forecast – December 08, 2016

The DAX index finally broke through the strong resistance around the 10800 region and this triggered a lot of stops and kept pushing the index higher and higher as a result. The index rests above 11000 at close of the day, up about 2% from the previous day. We have been warning about this impending break for long and it was only a question of when rather than an “if”. There was no specific event that has pushed the DAX through the highs of its range but more a combination of factors and also the anticipation of the ECB meeting which is scheduled to be held today.

During the ECB press conference, Draghi is expected to spell out the details of the timeline for bringing the QE program to an end. The program is supposed to end in March 2017 but rather than an abrupt stop, we would expect them to taper it off. There is also the possibility that the QE program might be extended, in one form or the other, beyond March 2017 and this would be negative for the euro and positive for the European stocks and this is what the DAX buyers would be focussing on.  They would expect the ECB to announce the extension of this program and in anticipation of that, the DAX has pushed through. Like most breakouts, the push through has been very large and quick and has not given an opportunity for the traders to load their longs on a breakout. Traders now have to wait for a retest of the 10800 region for them to load their longs. It would be a very tiring wait as some may feel that an opportunity has been lost but this is how trading works.

Looking ahead to today, the ECB conference would be the key and there does not seem to be much to prevent the DAX from reaching 11400 within a short span of time.