After opening the week on a high due to better than expected bank stress results released Sunday, the DAX slipped below its support zone because of a dismal economic report concerning the German economy. The German research institute, IFO reported that the business climate index fell to levels not seen since December 2012, which analysts consider troubling, raising question marks regarding the health of the Eurozone’s most important economy.
The business climate index came in at 103.2, failing to reach the 104.3 consensus estimate. Many experts now believe that the current downtrend will ultimately force the European Central Bank to heavily speed up its asset buying program in the near future. It is imperative to state that the ECB started buying covered bonds early last week, which caused many to believe that the Eurozone economy is in a worse state than was previously assumed. Traders should shift their focus to important economic data scheduled to be released in the US markets, along with the FOMC minutes which will be presented in the latter half of the week. This information will help analysts further understand the course of action that may be taken by the Federal Reserve.
When looking at the hourly charts, the index broke below an important support zone near the 8955 level and is currently trading below the region, with the next range of support coming around the 8883 level. The resistance on the upside continues to remain near the psychological zone of 9100, while its momentum indicator is now giving a fresh sell signal, indicative of the shift of momentum towards the sell side. Lastly, the relative strength index is additionally pointing towards an imminent downwards slide.
Short the DAX at current levels for an intermediate target of 8883, with a strict stop loss above 8965