DAX Fundamental Analysis – week of November 28, 2016

DAX continued to trade within a tight weekly range as the traders are yet to decide on whether the index is overbought or oversold and hence are unwilling to commit to either side of the trade. On the one hand, the buyers are sceptical as the DAX is near the range highs but has not yet broken through the key resistance at 10800. On the other hand, the sellers are also not sure on whether they want to commit themselves as the US stock markets continue to make new highs and they feel that it is only a matter of time before that theme percolates into DAX. So they are not too keen to push the index too far down and commit themselves too much.

Last week, the only economic news of note was the German Ifo Business Climate where the data came in as per expectations and largely reinforced that the German economy is in good standing and will continue to be so in the near future as well. The economy is based on the foundations of manufacturing and any economy that has this foundation will tend to be strong for long and even in times of distress and thats what we have been seeing in the Germany which single-handedly continues to bolster the Euro economy despite turmoil all around it in the UK, Italy, France etc.

Looking ahead to the coming week, apart from a couple of speeches from the ECB President and the month end flows, we also have the NFP employment report from the US. If the data comes up good, then it is likely to increase the expectations for further rate hikes from the Fed in 2017 and that is likely to invoke mixed reaction from the stock markets. Users would be well advised to stay on the sidelines during this period of consolidation and wait for a clean break of 10800 on the upper side and 10600 on the lower side before they start to take positions in the DAX.