The DAX Index traded sharply lower to 13,261.2 at the wake of the European session trading. The initial drop may have been driven by Moody’s downgrading its credit rating for the euro area in 2020. According to the ratings agency, its outlook for euro zone sovereign debt is now negative after initially qualifying it as stable. They point out the worsening global environment, staggering public debt ratios, and the unstable political landscape for the downgrade.
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However, it would seem that risk appetite stemming from the US-China Phase One Deal buoyed German stocks and the DAX Index back up to its opening price. As of this writing, the stock index has recouped its losses trading 0.16% higher at 13,473.08.
On the 4-hour chart, we can see that the DAX Index pulled back to its previous highs. The area around 13,430.0 also coincides with the 23.6% Fib level when you draw the Fibonacci retracement tool from the low of January 8 to the high of January 10. If the current 4-hour candle closes as a hammer, it could mean that the DAX Index is priming for a rally beyond its current historic highs at 13,545.0. On the other hand, if the stock index drops below today’s lows at 13,361.0 it could fall to the 50% Fib level. This price, around 13,256.0 also coincides with the 100 SMA and 200 SMA as well as its previous highs.