Septembers mini storm hits Europe - DAX

In yesterday’s note on the AUDUSD, Septembers volatility episode was referred to as a mini storm whose reach had largely been confined to U.S. stocks, albeit with a stronger impact on the high growth tech sector.

Charts (3)

Shortly after the article was published and as storms are capable of doing, it changed focus hitting a broader range of asset classes including European equity markets.

The cause of the change in direction, an acceleration in new coronavirus cases in Europe that is fanning fears that a new round of government lockdowns and restrictions will be required.

While rolling lockdowns have become the new normal here in Australian and New Zealand, the likelihood of a dreary end to the Northern Hemisphere summer sadly appears to be increasing.

It also coincided with reports that Deutsche Bank, along with other global banks has continued to profit from illegal business dealings with criminal networks, despite previously being fined by U.S. regulators.  

In response, the German stock market, the DAX after spending most of the Northern Hemisphere summer drifting sideways, dropped -4.37%, one of the largest one day falls since March.

While it’s impossible to rule out the fall being a one day wonder, similar to the one in late July, the manner of yesterday’s fall after a period of very low volatility combined with evidence of a completed 5-wave advance from the March low to the September 13461 high, suggests yesterday’s pullback has further to go.  

At the very least, I would expect to see the DAX retest the band of support 12200/100 area coming from the July 31st, 12199.5 low and the 200-day moving average, not far below that at 12180.

Providing this support region holds, the expectation is for the uptrend to resume, leading to a retest of the year to date and all-time highs at 13824.

Keeping in mind, should the DAX fail to hold the 12200/100 support area, the odds of a deeper pullback towards 11500 increase considerably.  

Septembers mini storm hits Europe - DAX

Source Tradingview. The figures stated areas of the 22nd of September 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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