Risk event for the week starting 26 September: DAX

[MongiIG]

Next week the dominating theme is German economic data with Ifo, Gfk and CPI all coming in. In what is already a downward trend in the DAX, IGTV’s Jeremy Naylor looks at a short trade around the German benchmark index.

 

 Jeremy Naylor | Writer, London | Publication date: Friday 23 September 2022 

German economic data

Welcome, let's take a look now at a Risk Event for the week starting Monday 26th September.

Next week we get the German Gfk consumer confidence, the Ifo business climate and the German Consumer Price Index (CPI) data, all of which could conspire to see the markets come under further pressure.

But before then, we've just had some PMI data out in the German economy. This is the S&P Global Manufacturing PMI falling to 48.3, in line with expectations. Anything below 50 indicates contraction in the German economy, but the service data coming in is falling further than thought to 45.4. This was down from 47.7 in August and even lower than the 47.2 we saw as an estimate for this, so you can see the pressure building.

Now, the Federal Reserve (Fed) decision this week has already has taken the DAX dangerously close to an important area of support. But starting on Monday, we have the Ifo business climate out with economists looking for pressure on that index. The risk is for a downside print on what's expected there.

On Wednesday, we get the 7am release of the Gfk consumer confidence. The last reading there was a record low of a -36.5. And then on Thursday we get the 1pm release of the CPI, which climbed back up to 7.9% in the last month. So, upward pressure doubtless building there.

DAX technical analysis

But the way to trade this is on the German DAX. And you can see here that line of support that we've got here, which equals that 23.96% drop we saw from the record high back at the beginning of this year to that low down on the 8th March. And you can see we've tried several times to get below that line there, which is established with that low on the 5th July at 12,385, currently trading at 12,461.

If you are short on this with a view to taking a candle close below this line of support, which I think is almost certainly going to happen at some point, if we do get this negative data coming through next week, your stop-loss goes above the top of yesterday's candle initially at 12,800.

And then if we do get a further decline in this market with lower lows, you then bring your stop-loss in, which is the really efficient way of trading a trend. Keep on that trend until it turns around and takes your stop out. You keep on bringing that stop in closer and closer as you go further on down. If you get a candle close below the 12,385, you can see on this left hand side of the chart, there's then hardly anything stopping it all the way down to 11,331.

So at the moment, at least technically, it is looking very fragile, especially if you get a candle close below that line of support, looking for weaker data coming through in the German economy next week.