Market movers
Last week was characterized by low volatility until Friday, when the disappointing NFP data led to a very strong bullish reaction of the markets. These numbers, together with the numerous speeches of the FOMC members, raised many doubts about whether the FED will make any moves towards tapering in the short term.
The ZEW index in Germany and the inflation in the U.S. will be the protagonists of the week. The key economic event will be the meeting of the European Central Bank. The financial community is expecting there will be no event coming out from the meeting.
However, it will be interesting as some hawkish members, especially from the Nordic countries, will start to be more vocal in the Governing Council to normalize monetary policy while the latest European inflation figure hit 2% with strong growth over the past six months. European government yields have begun to rise. It will be interesting to witness the press conference of the ECB Governor Christine Lagarde to understand what tensions are present within the Governing Council.
Finally, the inflation data will provide more guidance. An increase of it could cause bearish pressures in the financial markets.
Analysis of the week and scenarios for DAX and Dow Jones
The employment data from Wall Street does not worry the markets and gives a glimpse of what the FED keeps saying, recent inflation peaks have been transitory. At the moment the bullish strength remains unchanged and we should continue to move higher in the coming weeks, although there will always be retracement days.
This week we should again see a low early in the week and a high on Friday. It can always be a good idea to monitor the intraday trends so that the weekly supports hold and give us a chance to see the bullish directional phase confirmed.
DE30 – Last Monday, the German index reached new all-time highs, touching the 15,652 area. The resistance at 15,464 was knocked down in the European opening on Monday, offering a strong bullish push. The rest of the week saw some weakness in the DAX in line with the US indices, which somehow held our weekly support in the 15,384 area. The weekly close showed further upward momentum, closing with further all-time highs in the 15,700 area.
The weekly high of last week, 15,656-15,755, remains our first target as 15,656 has already been reached. Extensions in case of bullish acceleration have target at 15,900 points. The real target of the DAX is to reach the 16,000-16,200 area. The price should keep the new resistance area 15,680-15,700 in order to continue upward.
New weekly support is around the 15,606 area. We are confident in the support area 15,578-15,545, under it we could see some corrective pressure.
The support area at 15,423-15,384 is very important. Below it, there is possibility to see weekly bearish reversal. Further support area is seen at 15,269-15,209 points. Key area for keeping the bullish strength is confirmed at 15,209. All these levels are optimal entry levels.
Supports in the area 15,119-15,062-15,043 are still weak after the rise of mid-May. Below them, a vertical fall could be interpreted as a probable new downtrend. We always watch the volumetric supports 15,017-14,981 and 14,842-14,804. The loss of these last two areas opens to new lows, with first target in the area 14,600-14,441.
US30 – Friday afternoon’s NFP data offered a significant boost to the Dow Jones Index despite being below expectations. The economies of the United States and many other countries around the world are slowly recovering following the Coronavirus pandemic that plagued virtually every country last year. As a result of the pandemic, millions of people lost their jobs.
However, the Biden administration is targeting at least 70 percent of American adults who should be vaccinated in the coming months. This would allow more businesses to open and more people to return to work. Employment data could continue to increase or maintain this level in the coming months, strengthening the stock market in the meantime.
On Tuesday the 1st of June, the U.S. index pushed hard into the final resistance 34,717-34,846, gateway to new all-time highs, quickly reaching the top. However, the market turned sharply in the afternoon, maintaining a corrective phase that led it to test support 34,445-34,395, knocking it down and quickly re-entering above it. After Friday’s NFP data, the prices turned upwards again, closing within the resistance mentioned above.
The obstacle 34,716-34,846 is now about to be broken down. This week we could easily reach 35,000 points and even higher.
The zone of 34,570-34,485 is an intermediate zone that we will take into account as a support if we return there during the week.
The weekly support is confirmed in the 34,445-34,395 area, which is essential to maintain the current bullish trend. Below it we should watch again for the 34,223 level to hold.
Fundamental support zone is placed at 34,015 – 33,976. Intermediate supports can be found at 34,307 and 34,134.
The bullish trend finds support at 33,873 and 33,585. If lost, the bearish pressure will come back strongly and with it the presence of a bear market. First target could be at 32,956 points.
IMPORTANT NOTE: The bullish trend has strengthened. Also this week it is wise to take notes of the openings of Monday and the closings of Friday, in order to have a confirmation or denial of the current trend. We advise to avoid overtrading and watch out for volatility caused by HFT. The US inflation data can change or strengthen the current trend. Also you should mark any gaps that may appear during the week.
Have a good trading week!
Research provided by Giancarlo Prisco
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