The Ger40 Futures (EUREX: FDAX) have resumed their downtrend after briefly halting a three-week losing streak last week.
The renewed decline follows hawkish comments from European Central Bank officials, with policymakers like Joachim Nagel and Robert Holzmann cautioning against premature discussions of rate cuts due to persistently high inflation.
Germany, the largest economy in Europe, witnessed an uptick in inflation to 3.7% in December from 3.2% the month prior, adding potential weight to the prospect of prolonged higher interest rates. As the market digests these developments, traders eagerly anticipate ECB President Lagarde’s upcoming speech on Friday, seeking insights directly from the source to gauge the potential direction of monetary policy.
Technical
The Ger40 Futures achieved a notable feat, surging to a fresh pinnacle and establishing a significant resistance level at 17123. This milestone reshaped the market dynamics, with the previous peak at 16615 undergoing a transformative shift into a now crucial support level following a breakthrough.
Remarkably, the 16615 support level has not only held but also garnered significance, as evident from its retest and subsequent rejection amid oversold RSI conditions. The rejection underscores its role as a substantial support level in the current price action.
Despite the surge from the 16615 level, the market encountered resistance at the 61.80% Fibonacci Retracement Golden Ratio, marking a critical turning point. The market, respecting the Golden Ratio as an intermediate resistance level, initiated a reversal back toward the established support level.
Considering the prevailing oversold RSI conditions at the support level, a potential reversal could be on the horizon. In the event of a reversal, the 50% level potentially emerges as the next point of interest to the upside. Conversely, a breakdown below the support level with high volume could signal bearish pressures. In such a scenario, the 16406 level, forming a demand zone, could become a plausible downside point of interest.
Summary
German equities face renewed downside pressures amid hawkish ECB comments. The uptick in inflation to 3.7% in December and a critical resistance at 17123 pose challenges to the upside. The 16615 level, now a vital support, faces an oversold RSI, signalling a potential reversal, while a breakdown may test the demand zone at 16406.
Sources: Federal Statistical Office, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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