Technical Analyst, Saxo Bank
Summary: DAX and Euro Stoxx 50 testing key resistance levels. A close above is likely to push Indices higher 3-4% higher short-term
DAX is testing resistance at 14,654. RSI is back above 60 indicating higher levels are likely. However, there is still divergence but if RSI closes above its falling trendline will indicate DAX is likely to move higher and test key resistance at 14,901.
However, 14,901 is not a strong resistance and if DAX closes above December 20222 peak at 14,676 uptrend has been confirmed both short- and medium-term.
15K is a very psychological level so a close above will give the market the feeling that all crisis talk is over and we are back to the “good old days” of Bull Market. We will most likely see stories about DAX could make an all-time high. But reality can easily return. However, a move above 15K is in the cards and a 1.618 Fibonacci Projection at around 15,222 could be seen before weakness will spread across the market.
For DAX to reverse this uptrend a close below 13,791 is needed. First indication of this scenario to play out could be a break back below 14,149
Euro Stoxx 50 is at the time of writing above key resistance at around 4,025. If closing above and if RSI is closing above its falling trendline further uptrend should be expected. 4,165 is 0.786 retracement of the entire down trend since 2021 peak. However, a move to 1.618 Fibo Projection of the December correction at around 4,200 seems likely
IF Euro Stoxx fails to close above 4,025 the Index is likely to slide lower. But it needs to close below 3,767 to reverse the uptrend.
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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.