DAX Fundamental Analysis – week of December 12, 2016

The DAX had a highly bullish week as the ECB effectively announced an extension of its QE program in its press conference on Thursday.  We had been mentioning in many of our forecasts that though the DAX was in a consolidation mode, it was bullish during this period and any weakness was always met with some buying and led to a bounce everytime. Last week, after some weakness in the early part of the week, the index finally broke through the highs of its recent range in anticipation of the ECB meeting on Thursday.

The stock market were indeed expecting the ECB to extend its QE program and this anticipation led to a bull run in the index as it scorched through the 10800 mark and broke through 11000 on the same day. This was confirmed on Thursday as Draghi extended the QE program till the end of 2017 and also said that the ECB would be in the markets till atleast 2018.  This weakened the euro but cheered the European bourses as they rejoiced at the availability of additional liquidity through the ECB. The DAX continued to push to new highs for the week and finished the week near its highs and clearly looks good for more in the coming week as the US stock markets have also joined in the bull run.

In the coming week, the focus will be on the Fed meeting and the possibility of a rate hike being announced by the Fed. The market would also be looking towards some hint or guidance for further hikes in 2017 and failure of anything would be bad for the dollar but good for the stock markets as funds would continue to stay invested in the markets in the hope of additional returns. The DAX will continue to be bullish during the early part of the week and should reach its short term target of 11400 during that period. We may then have a correction towards the broken resistance at 10800 region which will be the opportunity for buyers to go long with tight SL.