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DAX remains above critical support

It looks like the recent sell-off in EU equities might be over as the DAX has managed to defend an important support.

The German DAX index rose notably on Monday, trying to recover from the last week’s sell-off. At the time of writing, it was seen at around 15,300 EUR, still above the major psychological support of 15,000 EUR.

Weak macro in EU

Earlier today, the German factory orders cratered to -6.9% monthly in October, down from 1.3% in September . The year-on-year change plummeted to -1%, down from 9.7% previously. Apparently, that was bullish for the DAX index, sending it half a percent higher.

Additionally, the EU Sentix Investor Confidence index dropped more than expected to 13.5 in December, down from 18.3 in November , citing lockdowns as the primary driver of uncertainty in the region.

The index of current conditions dropped for the third month in a row to 13.3 from 23.5 previously, falling to its lowest since May. On the bright side, the expectations index jumped to 13.8 from 13.3 in November.

Sentix Managing Director Manfred Huebner said: “A slowdown and even a recession no longer seem to be ruled out now. These lockdowns hit the economy harder than before.”

From other news, European Central Bank (ECB) President Christine Lagarde came out on Saturday to speak about the economic and inflation outlook. She failed to say anything new, and the ECB still expects inflation to come down notably in 2022, despite the actual trend pointing to more substantial gains in inflation every month. The ECB remains the most dovish among the major central banks, possibly supporting the DAX index in the following months.

Daily chart remains bullish

As long as the DAX defends the key support of 15,000 EUR, the medium-term uptrend remains intact. However, the long-term bull market has ended as the index has not moved anywhere since April.

The short-term resistance seems to be at 15,600 EUR, and once the DAX is above it, we could see a continuation of the rally toward 16,000 EUR. However, the index must climb above 16,250 EUR to confirm the bullish bias, which right now seems like a challenging task.

Alternatively, should the support of 15,000 EUR fall, large stop-losses of long positions would be hit, likely resulting in a significant decline toward 14,100 EUR, where January/February 2021 highs are.

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