After spending a couple of days consolidating near the highs of its range, the DAX plunged yesterday as the stock markets in Europe had a bearish trend for the day. This was in alignment with our forecast over the past couple of days, when the DAX was consolidating near its range highs, where we had mentioned that with the DAX having broken through the 12550 region, we felt that the trend had changed and that the traders should now start looking to sell the index rather than try and buy it.
DAX Likely to Stay Weak
The fall in the European stock markets was following the release of the ECB minutes where it was clear that the members did discuss about the tapering of the QE but decided to hold it off till the inflation data was supportive of this move. This makes it very clear that we are very near a situation where the ECB would start thinking about tapering very seriously and this is great news for the currency, as it means that the economy has improved a lot over the last couple of years that it has made the ECB confident of such a move, but it is not good news for the stock markets as that would mean that the ECB would slowly stop buying in the markets.
This led to a sell of in the stock markets and DAX suffered as a result. The writing on the wall was pretty much clear over the last few days when the index had fallen and broken through the 12550 support and it could not break back above this region. We also have had a visit to this region over the past couple of days and so, in all facets, the index was ripe for another round of correction and thats what we saw yesterday as the DAX fell through the 12400 region once again and continues to look weak.
Looking ahead to the rest of the day, we do not have any major news from Germany but we have the NFP from the US later in the day which is likely to have a strong effect on the markets. This will give a glimpse of the strength of the US economy and hence likely to bring in volatility.
This article was originally posted on FX Empire