After having spent several weeks within a tight range between 12550 and 12950, the DAX index finally broke through the lows of the range last week and this should be marked as an important event in the medium term as far as the DAX is concerned. For several weeks, the bulls had made their stand clear in the 12550 by pushing the DAX higher and bringing about a bounce in the index whenever it corrected towards that region. So, it was like a line in the sand which needed to be broken for the bears to take control.
DAX Falls As ECB is Hawkish
In fact, during several times over this period, it looked as though the index may not break through the lows at all and that it would continue to remain under bullish control for quite some time. There were even pushes towards the highs of the range and it looked as though the break through 13000 would only be a matter of time. But over the last 2-3 weeks, we have been seeing the index repeatedly fail at the highs of the range and we had mentioned in our forecats that such repeated failures at the highs could pull the gas out of the bull run as some of the bulls might finally give up and take some profits out and this would also make the sellers bold enough to sell even more in that region.
This is what happened over the last couple of weeks as more and more sells built up in the 12950 region and the bulls got tired and the index fell through. Over the last week, we saw the index fall through the 12550 region, in line with the fall in many of the major stock markets all around the world. This happened despite an improvement in the economic data from the Eurozone. In a twist, the improving data meant that the ECB might soon look at tapering of the QE and this was negative for the DAX. Normally, good data would mean strong stock markets but in this case, good data meant tapering and hence a weaker stock market and this was why the DAX fell through.
Looking ahead to the new week, we do not have any major news from Germany but we have a slew of data including the FOMC and the NFP from the US which is likely to have an impact on the DAX. We may see a bounce towards 12550 during the upcoming week but now the trend is clearly bearish and the path towards 12000 seems clear.
This article was originally posted on FX Empire