DAX 30, Coronavirus Infections, German National Lockdown, Vaccinations, IGCS – Talking Points:
- Risk appetite notably firmed during APAC trade as attention turns to the upcoming FOMC meeting later this week.
- The notable drop-off in coronavirus infections in Germany may underpin regional asset prices.
- DAX 30 index poised to continue gaining ground as price consolidates above key support.
Asia-Pacific Recap
Equity markets broadly gained during Asia-Pacific trade as risk appetite notably firmed, on the back of fiscal stimulus hopes and the expectation of continued monetary policy support from the Federal Reserve. Australia’s ASX 200 index climbed 0.36% while Japan’s Nikkei 225 rose 0.67%.
Hong Kong’s Hang Seng index surged 1.75% as investors flocked to purchase shares of technology firm Tencent, with the stock surging as much as 10%. In FX markets, the cyclically-sensitive AUD, NZD, CAD and NOK largely outperformed, while the haven-associated USD, JPY and CHF lost ground against their major counterparts.
Looking ahead, German business climate figures for the month of January headline the economic docket alongside a speech from European Central Bank President Christine Lagarde.
Flattening Viral Curve to Underpin DAX 30
The notable drop-off in coronavirus infections in Germany may underpin the benchmark DAX 30 index in the near term, despite the government’s downwardly revised forecast for economic growth in 2021. The imposition of a national lockdown at the end of November has had a drastic effect on the local economy, with the Markit Composite PMI for January dipping back to 50.8 (prev. 52).
Indeed, the decision by Chancellor Angela Merkel to extend the restrictive curbs has led to the government revising down its growth forecast for 2021 from 4.4% to 3%. This is reflective of the deterioration in economic and health outcomes across the Euro-zone, as the trading bloc careens towards a double-dip recession.
However, with the 7-day moving average tracking Covid-19 cases falling to its lowest levels since late October, and the rate of vaccinations creeping higher, there may be a sliver of light at the end of the tunnel. 1.63 million Germans have received at least one vaccine dose as of January 22.
Moreover, the recent purchase of over 200,000 doses of monoclonal antibody medication could help to supress the outbreak even further. Health Minister Jens Spahn stated that “the injection of these antibodies can help prevent patients at risk in the early phase from developing a serious condition”.
Therefore, investors may dismiss diminishing growth prospects and continue to put a premium on Germany’s benchmark DAX 30 in the short term.
Source - Worldometer
DAX 30 Index Futures Daily Chart – Schiff Pitchfork Guiding Price Higher
From a technical perspective, Germany’s benchmark DAX 30 index looks poised to continue its climb to fresh yearly highs, as price remains constructively perched above range support at 13730 – 13830.
With the RSI and MACD indicator hovering firmly above their respective neutral midpoints, the path of least resistance is skewed to the upside.
A daily close above the January 8 high (14138) is required to signal the resumption of the primary uptrend and would probably clear the path for buyers to challenge the 61.8% Fibonacci (14372). Hurdling that likely brings the 14800 mark into the crosshairs.
Alternatively, collapsing below range support at 13730 – 13830 could ignite a short-term pullback towards former support-turned-resistance at the September high (13464) and the trend-defining 50-day moving average (13515).
DAX 30 index futures daily chart created using Tradingview
IG Client Sentiment Report
The IG Client Sentiment Report shows 35.63% of traders are net-long with the ratio of traders short to long at 1.81 to 1. The number of traders net-long is 6.36% lower than yesterday and 2.04% higher from last week, while the number of traders net-short is 5.17% lower than yesterday and 16.87% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests DAX 30 prices may continue to rise.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger DAX 30-bullish contrarian trading bias.
-- Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss