Technical Analyst, Saxo Bank Group
As described in last Technical Update GER40 cfd and DAX were likely to dip below 13K . It did just that, and them some ie. a bit lower than expected. Down to 0.764 Fibonacci retracement of the Bull market since November 2020. It was also the 2.764 Projection of the Double/triple top like formation formed in 2021.
The bounce seems strong but it could soon face some resistance. We are back above 13K. Yesterday the GER40 cfd/future formed a Bullish Engulfing candle indicating bottom and reversal. However, trend is still down, RSI below 40 and no divergence on RSI and MACD, selling pressure could resume. Resistance at around 13,741 but rebound could continue to 13,900 i.e. 0.382 Fibo retracement of entire bear move since January peak.
However, if market is to be hit by good news rebound could extend to around 14.500. That could potentially be the 4th corrective move before a potential 5th move down.
Looking at the DAX (cash) Index it gapped back up this morning after forming two exhausting like candle previous two days. The Index could bounce back to the Consolidation Area around 14K. However, if sellers take back control and close the gap between today’s and yesterday’s candle bodies (two horizontal dashed lines) we could see a push to test lows from last week at 12,438 and likely new lows.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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