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The German DAX index has moved back towards the 15,600 level after the German economy posted more robust manufacturing and retail sales numbers, which pointed to continued strength in the German economy.
Digging into the data, the German manufacturing PMI was revised slightly higher to 65.9 in July of 2021 earlier this week from a preliminary of 65.6 and compared to 65.1 in June. The revised reading pointed to the strongest growth in factory activity since April and the third highest on record
Additionally, data showed that retail sales in Germany jumped 4.2% mom in June of 2021, following an upwardly revised 4.6% surge in May and much better than market forecasts of 2%, due to the continuing decline of the coronavirus incidence in all of Germany.
Still, COVID-19 presents the biggest downside risk to the German economy, and recent weakness in the Chinese economy is another headwind that could harm Europe’s largest economy.
This could be one reason why the Germany DAX is relatively contained the moment and sandwiched between the July low and the all-time high, which is found slightly above the 15,800 level.
Looking at sentiment data, retail traders are on the fence right now as to whether the German DAX continues to breakout. The ActivTrader Market sentiment tool shows that GER30 traders are currently 55 percent bearish towards the index.
Based on historical data, retail traders tend to lean against the prevailing trend and have poor market timing. Therefore, we probably need to see negative sentiment rising in order for the bull run in the GER30 to continue.
GER30 Short-Term Technical Analysis
The four-hour time frame shows that the shot-term technicals behind the German DAX are very mixed at the moment, therefore it makes its very difficult to decide which way the index breaks, so we probably need some help from technical indicators.
According to the Ichimoku indicator the bullish short-term case is in play while the Ger30 trades above the 15,300 level. The 15,800 level remains the obvious bullish target if momentum builds.
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GER30 Medium-Term Technical Analysis
Looking at the weekly and monthly time charts, a major technical breakout took place from a large, inverted head and shoulders pattern in March this, which continues to point to a coming rally towards the 18,000 area.
COVID-19 permitting, I would expect the pattern to eventually play out to its full upside potential. My confidence is increased as further QE could propel the GER30 even higher if central banks become more aggressive.
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