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DAX® – different methodology – same trigger

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HSBC Daily Trading

Different methodology – same triggers

The DAX® increased significantly yesterday. An opening (almost) at the daily low and a closing price (almost) at the daily high are particularly optimistic. So there was buying interest throughout the trading day, which from the perspective of the candlestick analysis creates a “white block”. Despite these hopeful signals, the share barometer is still trading just below the 13,000 mark. Our last discussed signal generators in the form of the most recent upward price gap (lower gap edge at 12,753 points) or the previous upward trend since the end of 2018 (currently at 13,052 points) therefore remain unchanged. The activation of one of the two triggers is necessary to free the DAX® from its current lethargy. Due to the specifications, the focus is on the lower signal level anyway. We currently find it helpful to take a look at the Ichimoku system. On the one hand, the DAX® is trading above its cloud, which signals an ideal bullish trend (see chart). On the other hand, two Ichimoku lines coincide with the above. Course gap. The importance of the catalysts discussed is thus underpinned by a different technical analysis method.

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DAX® (Daily)

Chart DAX®

Source: Refinitiv, tradesignal

Small floor, big floor?

Regular readers of HSBC Daily Trading know that we attach particular importance to nested price patterns. Such a price pattern, in which one (technical chart) wheel engages the other, investors may currently find in the Shanghai Composite. Thanks to the spurt above the high of April 2019 at 3,288 points, there is now a small, lower reversal. Looking at the share price development over the past four and a half years, the question now arises whether the trend reversal formation described is not also part of a larger bottoming out (see chart). The decisive level defines the high from the beginning of 2018 at 3,578 points. The importance of this brand is also underpinned by the 2009 high (3,478 points) and two Fibonacci retracements (3,487 / 3.14 points). In purely mathematical terms, the reversal formation that has already been completed promises sufficient price potential to allow the big breakout to follow. The bulls’ ambitions are also reflected in the long-term charts. After a typical “hammer” was trained on a 6-month basis in the 2nd half of 2019 and 1st half of 2020, the “bullish” resolution of the two constructive candle patterns was finally achieved.

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Shanghai Composite (Weekly)

Chart Shanghai Composite

Source: Refinitiv, tradesignal

Speculation on the attack

Although there are still around four and a half months to complete until the end of the year, it is already clear that the stock market year 2020 will go down in stock market history as a very special one. On the stock market, the fastest and most dynamic setback in DAX® history was followed by an equally dynamic recovery. The first eight months of the year were also remarkable on the foreign exchange market: While there was only a high-low range of seven US cents in the entire past year, the EUR / USD currency pair was between the monthly low and the high nine in March alone US cents. The trading range from March dwarfs the equivalent of the entire previous year 2019! There is currently another remarkable constellation for the European currency compared to the greenback. According to the weekly CoT data, the amount of speculative EUR long positions has meanwhile grown to an all-time high. Never before – and the statistics are at least collected back to the last millennium – speculators had larger EUR long exposures (see continuation below).

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EUR / USD (Quarterly)

Chart EUR / USD

Source: Refinitiv, tradesignal

Massive bundle of resistance in front of the chest

So the question now arises as to whether the status of a milkmaid boom has already been achieved? Or, as it is called in modern German: Is the trade: Pro EUR, versus USD now “overcrowded”? Interestingly, the extreme constellation described in the CoT statistics coincides with the exploration of the massive resistance zone between USD 1.17 and USD 1.20. At this level, a Fibonacci cluster consists of three different retracements (1.1684 / 1.1734 / 1.1822 USD) in connection with the base downtrend since the record highs in summer 2008 (currently at 1.1849 USD) and various horizontal hurdles of the last decade at 1.18 / 1.20 USD a real bundle of barriers. Since, after a rally by 13 US cents since the March low of USD 1.0635, the euro is overbought against the US dollar (e.g. RSI on a daily and weekly basis) and the “seasonality” factor goes up to the US dollar. Presidential election speaks against the European single currency, should the trees no longer grow into the sky in the future. Rather, we favor a temporary EUR consolidation towards the USD 1.15 mark (March high). Following such a gathering of strength, there are better chances for a sustainable trend reversal.

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EUR / USD (Monthly)

Chart EUR / USD

Source: Refinitiv, tradesignal

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