DAX
Dax index continues its consolidation in what looks like the right shoulder of an inverse head and shoulders’ formation. As long as it remains in the upper half of the channel, it keeps a bullish bias, especially considering that the ECB is expected to ease financial conditions more.
The stronger currency is a problem for Dax. Unlike the United States, where the stock market indexes outperform fueled by a weaker dollar, the Dax is unable to rally on the back of an ever-stronger Euro.
After it reached as high as 1.2175 ahead of last Friday’s NFP report, the EURUSD exchange rate failed to make a meaningful correction. It only found buyers on every dip to 1.21. As such, any attempt on the Dax index to break out of the right shoulder is met with stiff resistance. However, if the ECB over-delivers, the Dax may try to break the recent range.
The consolidation on the right shoulder offers the possibility to trade a breakout. Conservative traders may want to wait for the price to break and close above the rising edge of a channel before going long. In this case, the invalidation level comes at the lower edge of the channel, and that target must respect the minimum threshold of 1:2.
