We are now coming up to the end of the summer vacation period and with most traders back at their desks from next week at the beginning of September its a good time to assess where we are in the bigger picture scheme of things.
Macro Economic Overview
We have had a "bear market" rally both in Europe and the US this past month or so and now it is a question of whether this has any strength to maintain any further upswing. Last Fridays price action moves lower on the back of ECB sources comments of a possible 75bps hike and Powell´s Jackson Hole statement, suggest it probably has not. The global economic situation certainly doesn´t paint a rosy picture. Inflation is still not under control in either economy although there have been some tentative signs in the US that maybe things might be at least topping out. In the Euro zone there has been no indication of this and next Tuesday´s German / Eurozone CPI readings are estimated to show a slight increase on July´s CPI reading of 8.9% to 9.0% in August.
With regard to the overall health of both economies its safe to say the US is in much better shape. Employment remains strong and recession while technically on the cards is further away than in Europe. The Euro Zone economies continue to suffer from the strains of war, inflation and energy concerns. All three are undoubtedly linked and any good news on the Russia Ukraine front would be the biggest positive boost it could get. However, I suspect as we start to move into the winter, if there is no let up, things could get decisively worse and a real as opposed to a technical recession in Europe is a stark possibility.
Therefore, we seem set to test lower in early September while we wait for both the ECB rates statement (Sept 8) and the FOMC (Sept 21).
However, sentiment and market participants views going forward are the real drivers of prices. Current levels and movement either way are always discounted by what's in participants minds going forward. Should data, Putin, the Fed or the ECB (or China) suggest in any way that the clouds may start to lift the markets will be the first to react.
For example any let up in Fed language surrounding rate hikes / labour market strength will be jumped on by traders. Similarly any comments from either The Ukraine or Russia which strike (or even seem to strike) a more conciliatory tone will trigger an eager reaction as it would suggest an easing in gas flows and thereby energy inflation. Any suggestion of lower inflation and or the cessation of war in Europe will have a dramatic effect.
Always worth bearing that in mind for day traders. What we see now in prices reflects a view of the future and anything suggesting brighter or darker days ahead will see us either quickly pushing back up the charts or cascading lower. We have to be listening and in reaction mode at all times.
As (day) traders we as much data dependent as the Central bankers are as they keep telling us :).
Technical / Chart Overview
A - Monthly Dax40 Chart
Its not a time frame I look at much however it is always useful to have a view as to where we sit in the wider context.
The three things that stand out are that we have printed a double top at around 16300, we have a more local ceiling of around 13950 - 14000 printed during this summer period and that we dipped close to the halfback of around of 12150. From this I would suggest having the halfback level on your charts and the 14000 more local top incase we trade close to the levels in the run up to year end.
B - Weekly Dax40 Chart
Moving lower to the weekly chart we can see a clear downward trend line from Q1 of this year and a series of wick bottoms around the 12500 level which have acted as Support and if we trade there again could be broken. Below that we have the post Covid pullback at around 11300. Again the weeklies are not overly useful for day trading but do help to paint the bigger picture and should we trade these levels its important to have them in mind.
C - Dax40 Daily Chart Zoomed Out
From the D1 longer view chart we can start to get a clearer picture of the scenarios in play. The things to note are :
1 - the measured move potential for a push below this year lows and possibly coming down close to the Covid pullback level noted on the weekly.
2 - the downward trendline from the post Covid highs in Q1 of this year which will likely act as R on a test back up towards these levels although we have already tested this a week or so ago.
3 - the local double (triple) bottom and the index gaps at around 12400 - 500 which has been tested three times already. Should it break we could be heading at least to the halfback noted above at around 12150 where we will get a better view as to whether we bounce or go lower. This is clearly in play in the shorter term.
D - Dax40 Daily Chart Zoomed In
Given the strong push down last Friday after ECB sources comments and the negative reaction to Powell´s Jackson Hole statement (discussed above) it will take some form of very positive catalyst to drive prices above the local highs formed at 13950 or indeed above last Fridays high of @13330.
Price action at this level looks to remain in bearish mode as we have been since the start of the year.
For next week keep an eye out for the local D1 lows of 12400 - 500 again being tested and perhaps broken.
In conclusion while we need to always have the bigger picture in mind, as day traders, the intraday price action is what we need to focus on. We have a steer from overhead which will impact our context but there will always be two way movement in prices (unless we get a clear trend day) and even then we will get price action clues to enable us to join in. Its our job to make sure we act on them.
The usual Daily Set Ups will be out before tomorrows open.
Hope you find this useful.