This article is written exclusively for Investing.com.
This morning's release of the softer eurozones highlights the impact supply bottlenecks are having on economic activity, and why the European Central Bank may have suggested the above. -target inflation.
As the ECB's accommodative policy is likely to remain in place for some time to come, this should provide a solid backdrop for European markets. As a result, German companies could reach new highs in the not-too-distant future. While several major central banks have already tightened their policies and the Fed will release the QE in the next month or two, the ECB remains steadfast and is therefore considered a more moderate central bank. This is especially the case given that Bundesbank president Jens Weidmann has announced that he will step down after more than a decade in the position. Weidmann's resignation — apparently for personal reasons — means the central bank will be without one of its most aggressive policymakers to influence policy decisions, increasing the likelihood of a slower withdrawal of support next year.
For what it's worth, next week will offer very little guidance on the outlook for monetary policy, as the new staff projections will be published at the next ECB meeting in December. Risks have undoubtedly increased since the September projections were made, but as ECB President Christine Lagarde said last weekend, she still views mounting price pressures as largely transient.
With the various ECB stimulus measures underway, European equity markets have continued to find support from the dips.
Indeed, the DAX looks constructive, and it may follow its US counterpart in approaching or surpassing its record set at 16030 in August.
The German benchmark index started its turnaround when the breakdown below the 200-day moving average turned out to be a bear trap in the first full week of October, after the slump in September. As the index quickly regained the technically important average and built a base above it, the next question was whether it would break its bearish trend that had limited previous recovery attempts. Well, after it topped out last Friday, it has held the breakout all week without making any further moves upwards.
While the lack of further upward follow-up is not something bullish investors expected after last week's performance, it can still be considered bullish consolidation.
A bullish consolidation like described above allows short-term oscillators (such as the RSI, MACD etc) to smooth out their overbought conditions over time, rather than price action. With the index no longer overbought on the lower timeframe and the technical background still bullish on the higher timeframe, traders would be more likely to look for long setups than short ones in such conditions.
I therefore expect the DAX to push forward from here and return to its old highs. For further confirmation, a daily close above the shaded red zone on the map, which would also take us above the Fibonacci level of 61.8%, would be ideal.
