In this article, we take a detailed look at the DAX, and bring in the EUR/USD as well. The DAX CFD is trading at 10711 at 12 pm EST on Friday, October 21, 2016, approaching the August 15th high at 10807, which is also the channel resistance as illustrated in the above 4-hour chart. Also on this chart one can see various support and resistance lines which I would like to highlight below.
Above current levels, resistance areas include the following:
Weekly R1 pivot point 10740
Yesterday’s high price 10749
Daily R1 pivot point 10777
August 15th high price 10807
Monthly R1 pivot point 10813
Daily R2 pivot point 10843
Weekly R2 pivot point 10891
Daily R3 pivot point 10936
There is a fair amount of overhead resistance on the DAX. Traders will look to go long on a break of the recent high at 10749 and again at 10807. But is that the right call, or should the move be faded? Let’s have a look at the Elliott Wave count for guidance.
From an Elliott wave perspective, we see this move as the end of a 5-wave sequence (ending diagonal) to complete green wave C, orange (Y), red Y and black b. We would therefore look for a confirmed reversal once this cycle is complete, which can be a 123-reversal pattern with reversal candlesticks. While the DAX will likely attempt to test those mentioned levels of 10749 and 10807, if price fails and reverses, look at the following support levels to guide the move down for the black wave c.
Below current levels, support areas include the following:
Daily pivot point 10684
Daily S1 pivot point 10618
Yesterday’s low price 10590
Weekly pivot point 10544
Daily S2 pivot point 10525
Monthly pivot point 10499
Daily S3 pivot point 10459
Looking at the EUR/USD and DAX correlation, there is a very strong negative correlation in the last trading week, with the EUR/USD making new lows and the DAX making new highs. While this isn’t a usual pattern, it might be interesting to go with that for the next week trading week. See the Daily chart below with the EUR/USD overlay on the DAX.
Moving down to the 1-hour chart below, one can see the negative correlation playing out on this smaller time frame. For the upcoming week, follow both markets as the DAX continues to test higher resistance levels noted above and the EUR/USD continues to test lower levels. It will be interesting to see if the EUR/USD finds support when the DAX completes its Elliott Wave cycle.
While we have not presented a detailed Elliott Wave count on the EUR/USD in this analysis piece, we follow both the DAX and the EUR/USD daily in our Elliott Wave Desk service. Elliott Wave analysis provides the direction, the view and the context. It is up to you to use your strategy to confirm your trades. To follow our daily Elliott Wave analysis on 13 different markets, sign up at elliottwavedesk.com.
For this week, I encourage you to test your skills with this Elliott Wave analysis while keeping your risk and emotions under control. Have a clear plan and trade your plan. We wish you success in your trading business.