CAC and DAX Could Make Quite The Pair

The CAC displays a strong, bullish trend structure coupled with shallow pullbacks into the 8/21 eMA’s. Having broken to a new multi-month high it appears set to extend its trend. Ideally, we’ll see a retracement towards the original breakout level, although momentum is strong so perhaps one to consider for bullish setups on the intraday timeframes.

The DAX has struggled to keep up pace. Whilst it has printed a series of higher lows and trades within a bullish channel, the 200-day eMA and November highs have capped upside since February. So, we’d want to see a clear break above 11,690 before considering bullish setups. But, if a break higher is not to materialise, we’re on the look-out for a break beneath the 11,400 low or lower bullish channel to signal a deeper, bearish move.

 

And, whilst both CAC and DAX are of interest in their own right, they could also be of interest to pairs traders. The ratio chart (CAC/DAX) shows CAC is clearly the stronger performer, and its bullish trend has seen a break higher from a pennant. The upside to pairs trading is it can reduce market risk in the event both CAC and DAX fall in tandem. However, the trade-off here is that it can reduce the volatility (therefore your P&L) compared with trading either of the markets on their own.

 

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