The German DAX hit a new all-time high yesterday as European equity traders cheered the news that the Federal Reserve will continue to pump massive amounts of liquidity into financial markets and kept US interest rates at ultra-low levels.
A clear case of optimism towards European stocks is the Eurostoxx 50, which is a representation of the leading 50 companies in Europe, many of which are German. The EuroStoxx 50 actually exceeded its post-pandemic high from February 2020 this week.
Heavyweight names inside the German DAX, such as Volkswagen, posted stellar gains on Thursday in expectation of the United States and Chinese economies remaining a key export partner for the German economy.
Bank of America Merrill Lynch noted “We expect further upside for bond yields in response to sharp acceleration in global growth, rising inflation and reduced monetary policy accommodation,”.
Rising bond yields in the United States have been a boon for European equity markets. Undervalued stocks linked to the real economy inside the German DAX have seen tremendous growth over recent weeks.
A weakening of the euro currency against the US dollar and particularly the British pound has also been a positive for the German DAX. Many of the big names inside the GER30 are reliant on exports to overseas country, such as the US and the UK, a weaker euro currency will therefore help.
On the technical front it is all systems go for the GER30. Lower time frame analysis is pointing to the 15,000 level as the next step for the index, while higher time frame analysis paints an even more bullish price picture.
The ActivTrader Market sentiment tool shows that GER30 traders are still slightly bearish, with 56 percent of market participants holding a negative bias towards the GER30. Traders have remained slightly bearish since the 14,500 level, meaning that they are still on the wrong side of the trade and also underwater in terms of gains.
GER30 Short-Term Technical Analysis
The four-hour time frame shows that the German DAX is close to reaching the overall target of a large, inverted head and shoulders pattern, which was activated earlier this month.
According to the overall size of the inverted head of the pattern the German DAX could reach the 14,800 level in the short-term, meaning that the target is near-term, and that some traders could be booking profits are this area.
It is possible that an over extension to the upside will take, and the GER30 could test towards the psychological 15,000 resistance level. However, a pullback towards Ichimoku support, around the 14,500 level is also possible.
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GER30 Medium-Term Technical Analysis
Looking at the daily time chart, a huge multi-month breakout is in play while the GER30 trades above the 13,800 level, which is the neckline of a large bullish reversal pattern, that holds 5,000 points of upside potential.
The 18,500 and 19,000 levels are seen as the wider targets of the bullish price pattern. Bears must be extremely careful as the pattern is now starting to play out and the upside in the index has been accelerating.
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