DAX – Third bounce from the uptrend. Breakout of ATH?

European markets remain steady, amid a hawkish ECB and prospects for more resilient inflation, helped by still-low energy prices and stronger economic data fueling hopes that the economy is unlikely to slip into recession as was expected.

The industrials sector still looks stable, with the DAX managing to bounce off the lower boundary of the ascending channel, signaling a potential continuation of the trend. There is no successful breakout of the consolidation yet, but Friday’s bullish bar hints at a potential move towards the 16020 – 16250 ATH levels in the short term. High interest rates do not seem to worry the industrial sector and Europe as a whole, as fuel prices have fallen significantly from their highs. This would moderate costs for companies and make them more stable in a tight monetary policy environment.

Sequential is in an uptrend with a printed 3, suggesting it still has plenty of room for upside.

The DeMarker Oscillator failed to enter the Oversold territory, which is a positive sign of weakness from the sellers.

I expect an upside move towards the 16020 – 16250 zone in the short term as market sentiment is still positive, fundamentals in Europe are more bullish than in the US and cash flows are still solid to the block.

Potential catalysts for movement

This week some key economic data is expected from Europe and Germany in particular, which may support technical conditions, leading to higher values.

Today the focus is on the Eurozone Retail Sales data at 12:00, which is expected to come out stronger than the previous reading. This would be a negative factor for the markets in the bloc, but for now the strong demand does not seem to bother market participants, which would lead to a weak reaction and a low chance of a change in the bullish technical setup.

On Tuesday, data on Factory Orders from Germany will be released, where a decline is expected – positive for the markets.

More volatility could emerge on Wednesday when Eurozone GDP data is released, as weaker data will fuel optimism that inflation may fall at a sustained pace if the economy continues to weaken.

Of course, Powell will shake up all markets with his statement on Tuesday and Wednesday at 17:00, and a more hawkish tone would fuel some fears about US monetary policy. However, a hawkish Fed is likely already priced in, as signaled by the market action in U.S. indices. For now, hawkish comments are being ignored as inflation, despite falling less than expected, continues its downward trend and interest rates will soon reach the Fed’s target. Some Fed members hinted at a potential 25 basis point hike, which would be bullish for markets.

The most important data for Germany that would really provide some significant momentum is the CPI data on Friday 9:00. Inflation is expected to remain flat and if the data comes out weaker, it would have a positive impact on the DAX.

Market Profile

The new month started with a strong upward momentum, with the price crossing above the Value area from the previous month, a signal for a potential expansion in an upward direction. When holding around the current levels, support will be the volume block 15500 – 15200.

Conclusion

Potential correction to 15500, may give better risk/reward ratio and a range break to the upside will be a good setup for a quick swing to the 16020 – 16250 area with a potential breakout of the ATH levels. I expect the momentum to reach 16810, which will give a 1 to 2 ratio to this trade, after which we may see a correction to retest the ATH levels. On a successful retest, the bullish momentum could last longer, which would result in an even better risk/reward ratio, around 1 to 3 / 1 to 4. The stop loss zone in this setup is around 15100, below the last low and out the ascending channel, whose decline would be an early signal of an impending correction.