DAX index
Dax index broke out of a pennant formation this Monday and the projected levels point to a new 2020 high. Considering that the ECB is expected to further ease the monetary policy in December, the chances are that the Dax will continue its bullish move.
The strong Euro, however, weighs on the Dax. This is one of the main reasons why Dax lags the price action seen in the United States stock market. While the Dow Jones, the S&P500, and Nasdaq reached new all-time highs during the pandemic, the Dax had a difficult time doing so. Part of the explanation is the strong Euro that does not support higher equities.
While the US stock indices benefited from a lower USD, we cannot say the same about the Euro. The EURUSD trades now close to 1.20 when compared to 1.07 in March.
The next leg higher in the Dax may diverge from the US equities. For instance, it could be triggered by a lower EUR, not necessarily a stronger USD.
Bears believing the ECB will be successful in keeping the EURUSD below 1.20 in December may want to say long on the Dax index, targeting a new high for the year. On the flip side, a move blow 13,000 would invalidate the pennant formation.
