DAX consolidates in a sideways channel


The early morning pressure on the DAX index eased quickly and it accelerated higher during the London session, having erased nearly the whole daily loss. It was trading at around 9,550 EUR at the last check.

It looks like the index is consolidating in a large flag pattern after staging a 20% rally from March lows. However, the barrier at the psychological level of 10,000 EUR has held three times and as long as the index trades below this level, the medium-term outlook seems bearish. 

The support seems to be in the lower area of the channel, which is at around 9,300 - 9,400 EUR and while the index remains above this level, the short-term trend could actually be bullish. However, if this support is taken out, we could see a decline to 9,160 EUR or possibly to the 9,000 EUR threshold.

Volatility remains elevated and the fundamental situation still favors further decline. However, central banks are pumping massive amounts of liquidity into the markets, which is slowing down the drop. 

For traders, it could be better to wait out how the situation develops and trade either the breakout above 10,000 EUR or the breakdown below 9,160 EUR.

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