After opening on a high, the DAX was unable to sustain itself at those levels and swiftly gave up all of its gains, post a report released by the European Commission. The report effectively slashed the growth and inflation targets for a lifeless European economy. As per the report, the European commission believes that Germany will grow only by 1.3% by the end of the year and by 1.1% in 2015. Inflation forecasts were additionally reduced, as the commission stated that it will only be at around 0.5% this year and will only expand to 1.5% by 2016, which is still lower than the ECB target of 2%. This rattled analysts who now are seriously expecting a deflationary environment in the near future.
Additionally, speculations are rife that the European Central Bank will be forced to introduce a bond-buying program if it desires to pull the Eurozone bank from the brink of a recession. Traders should closely keep an eye on the upcoming ECB meeting scheduled on Thursday, which could of course impact the DAX. Furthermore, economic reports coming out of the US economy should provide an insight into the extent of the divergence between the policy stances adopted by the ECB and Federal Reserve.
When looking at the hourly charts for the DAX, the index is facing resistance at the 9330 level while support is emerging at the 9143 zone. Additionally, it is currently trading above its 100-day moving average at 9140. Meanwhile, the momentum indicators for DAX are implying sell, showing a clear change of direction. Lastly, the relative strength index is additionally, providing a fresh sell signal, which is of course a bearish sign.
Long DAX if it moves above 9330 for a short-term target at 700
Short DAX if it moves below 9143 for a short-term target at 8957, with a strict stop loss above 9210