DAX Rips Higher on NFP Beat Ignoring Poor Risk-Reward Ratio

Over the last week, the DAX 30 has been resilient despite Covid-19 cases soaring to new all-time highs in the USA, and the last few hours the price breached the June 23 high of 12661. The reason for the move higher today is the better than expected US non-farm payrolls.

Technically, the trend in the DAX 30 remains upwards, and the index is now 2.20% away from the June 8 high. The mover lower from the June high happened on fears of the second wave, but that fear seems now to be blown away. Also, the higher Covid-19 cases have not resulted in a higher amount of deaths, yet watch the numbers going forward as they tend to come with a delay following a rise in new cases.

High likelihood that we will see a higher number of deaths in the USA in the coming week, and also the sharp rise from Monday’s low at 11952, suggests to me that the at least in the very short-term we could have seen the best of the DAX 30.

The high levels does not need to stop the DAX 30 from rising. But the risk-reward ratio is poor, and I don’t think experienced traders will be eager to buy. Instead, it will be new-to-the-market retail trader that buys at current levels, on the fear of missing out.

The better risk-reward ratio for bullish traders that want to enter in this upwards trend starts in the 12076 to 12419 interval. If the price indeed turns higher from the range, I think the price will revisit, the June 23 high, followed by the June 10 high at 12781.  A break to the lower end of the interval, will not alter the longer-term bullish trend. It will remain upwards above the June 29 low at 11946.

 

DAX 30 Daily Chart

By Alejandro Zambrano, Chief Market Strategist at ATFX.

 

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