DAX could break to fresh record as it hovers near major resistance area

European stocks are higher today, led by gains in Germany once again. At the time of this writing, the benchmark DAX index is up a good 0.9%, supported by speculation that the European Central Bank may introduce full-scale QE at some point early next year. Yesterday, the ECB Vice President Vitor Constancioy stated that the central bank is prepared to start buying sovereign bonds in Q1 should economic conditions warrant it. This was the first time that a specific time period for potential purchases of government debt was used by a high-ranking ECB member. Today, the ECB President, Mario Draghi, called for more action, stating that “monetary policy alone cannot do all the heavy lifting.” On top of this, there was some better than expected German data as the number of unemployed workers fell by a good 14 thousand in October, which easily beat expectations. All eyes are now on the German CPI, expected around 1pm GMT. If this shows a negative reading then calls for further ECB action will intensify. Any number below the expected flat reading should be bad news for the euro and moderately good news for European stocks.

But the DAX is now just 10 points shy of entering the 10000-10050 resistance area, so we may see some profit taking here despite the outcome of the data, particularly as the US markets are closed for Thanksgiving. Nevertheless, the strong recovery from mid-October suggests there is a good chance the DAX will break through this region in the near future. If and when it does, the bulls may then target the 127.2% Fibonacci extension level of the entire down move from the summer, at 10510. Given the strong recovery and the expected follow-through in momentum, this level could well be achieved before the year-end. But as stated, there is also a possibility for a short-term pullback. There’s good support around 9800 to 9875. This area was previously resistance, so it could turn into support upon retest. Meanwhile the RSI has drifted into the overbought territory and traders who pay attention to this indicator may decide to take profit which could weigh on the index. Overall though, with the ECB keen to cement its zero interest rate policy, the DAX looks set to break to fresh record territories soon.