TRADE IDEA - DAX

After a slump in September on concerns around slowing global growth and the impact of energy costs on inflation, the German stock market the DAX rebounded in October to be up 1.60% at the time of writing.

Germany

 

However, unlike the S&P500, which last Friday night made fresh all-time highs, the DAX, remains about 3% below its all-time high from August.

After drifting off the radar during the Northern Hemisphere spring and summer the reflation trade boosted by a strong rally in commodities and inflation expectations appears set for a revival.

The reflationary shift at the start of 2021 proved to be beneficial for stock indices weighted towards value/cyclical stocks, including the DAX.

Despite the recent expansion of the DAX from 30 to 40 stocks, the DAX remains a value index focusing on chemicals, cars, and industrials.

On this week’s economic calendar, two macro events will directly influence the fortunes of the DAX.

The first is the ECB meeting on Thursday, which is expected to be dovish. It may also see the ECB reiterate it is not spooked by the latest increase in inflation expectations and push back against the recent rise in bond yields.

The second is German GDP on Friday, expected to rise by 2.2% in the quarter supported by the success of the vaccine rollout that have allowed lockdown restrictions to remain easy.

Technically the DAX is currently edging above downtrend resistance at 15500, coming from the August 31st high of 16005.

Should the DAX break and post a daily close above horizontal resistance 15600/30, we favour opening longs in DAX futures, looking for a retest of resistance near 16,000 before a move to 16250.

Presuming the long trade is opened, a stop loss would be placed at 15370.

DAX Daily chart 25th of October 2021

Source Tradingview. The figures stated areas of October 25th, 2021. 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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