Market Analysis

DAX 30: Lifted by US China trade truce, weighed by Italian budget concern

The European markets began the month on the right foot, following the trade truce agreed on Saturday at the G20 summit between US and China. Both countries have agreed to postpone the planned increases of further tariffs on China in a reciprocal deal where China has also guaranteed to buy more US products. Although by the end of yesterday session, the indexes gave some of their initial gains back to the market.

Reports showed that Rome is negotiating with the European Commission to target a budget deficit under 2% of gross domestic product (GDP) in 2019 although the coalition’s original plan, involves a deficit ceiling of 2.4% to which European Commission objects.

The preliminary consumer price index (CPI) in Germany fell to 2.3% year-on-year in November compared to the 2.5% registered in October and missing analysts’ estimates of 2.4%. Prices of services and food are set to rise at a slower pace while energy inflation should pick up. The CPI is the main indicator to measure inflation and changes in purchasing trends. A low reading is regarded as positive for a stronger labour market, consumers have more money to buy goods and services, which the German economy benefits and grows.

The German gross domestic product (GDP) shrank a seasonally-adjusted 0.2% quarter-on-quarter in the three months to September of 2018, compared to 0.5% growth registered in the previous period and unrevised from the preliminary estimate. This was the first quarterly contraction since the first quarter of 2015 due to declines in both exports and household consumption.

Since the beginning of 2018 until last Monday close, the German index is underwater with a loss over 11.0% and ended November in the red with almost a 1.0% drop. Nonetheless, the DAX 30 week began with the left foot with a dive of over 0.5% and on the daily basis closed red with a 0.55% loss. Furthermore, the index remains in a bearish phase since late August.

On yesterday session, the DAX 30 opened with a 1.94% gap up that encountered the ferocious sellers that pushed the price down with a narrow range and closed near the low of the daily range, however, managed to close above Friday high, which suggests a weak bullish momentum.

The stochastic is showing a strong bullish momentum and is above the 50 midline.

The German index managed to make a new year-to-date low at 11,001.5 in late November and maybe developing a double bottom pattern. A double bottom pattern is the combination of two consecutive troughs that are roughly equal, with a moderate peak in-between that describes a change in trend and a momentum reversal from prior leading price action. The double bottom looks like the letter “W”. The break above the neckline at 11,647.1 can be viewed as the confirmation of the double bottom pattern which has a projected target at 12,297.7 roughly within a daily resistance zone that is also in the confluence of 2015 high.

Ger30 is a CFD written over DAX30 futures.


Ger30 Dec ’18 Daily Candlestick Chart

Ger30 Dec ’18 Daily Candlestick Chart


Watch out this Week:


Wednesday, December 05 at 08:55 GMT (03:55 ET): The Markit Economics is scheduled to release the Markit Services PMI and the Markit PMI Composite for November, which is expected by market analysts to come in unchanged at 53.3 and 52.2 respectively. Any reading above 50 signals expansion, while a reading under 50 shows contraction.


Friday, December 06 at 07:00 GMT (02:00 ET): The Statistisches Bundesamt Deutschland is scheduled to release the Industrial Production month-on-month in October, which is expected by market analysts to rise 0.3% compared to the 0.2% registered in the previous month. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive for the German economy, whereas a low reading is seen as negative.


Written by Hugo O’Neill, External Analyst


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