DAX 40, EU Stocks 50 Analysis
- DAX and EU Stock Indices remain vulnerable ahead of ECB interest rate decision
- Both indices are technically in bear markets having declined 20% from their highs
- Outlook remains bearish unless key technical levels are maintained
European assets have suffered due to general proximity to the invasion of Ukraine and the degree to which Europe depends on Russia for energy commodities such as oil, gas and coal. In addition to the geopolitical uncertainty, today marks the ECB interest rate decision and more importantly, the presser shortly after. The ECB Governing Council will have had to weigh up rising inflation risks against the negative economic impact due to the invasion of Ukraine.
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DAX 40 Turns Lower Ahead of ECB Meeting
Germany’s DAX 40 remains vulnerable to further selling should it fail to hold above 13800, a level that is a fair distance away from current price action. Therefore, the rise off of the recent low could merely serve as an opportunity for bears to enter the longer-term downtrend. The DAX, just like the EU Stocks Index has already dropped 20% from their highs, signalling a technical bear market. For the DAX, this is the red 13280 number.
DAX 40 Weekly Chart
Source: IG, prepared by Richard Snow
The daily chart highlights the prop three days of positive price action which has found stern resistance at the 13600 – 13800 zone of resistance. Price action has dropped lower during the morning session and could become more volatile around the ECB interest rate decision and presser. Any mention of the possibility that interest rates could rise sooner than anticipated, could result in a continued move lower towards 13210 and 12955. A more accommodative stance from the ECB could help support German equities where we could see another attempt to trade above 13800.
DAX 40 Daily Chart
Source: IG, prepared by Richard Snow
EU Stocks Dip – Technical Levels Analyzed
EU Stocks present a similar technical picture to the DAX. EU Stocks have dropped 20% below the high (3530) and therefore, the outlook also remains bearish. The weekly chart shows the recent lift off of the low as the RSI attempts to recover from oversold conditions. The bearish outlook remains constructive as long as prices remain below the pre-pandemic high of 3875. A potential indicator for that would be to watch 3690. Failure to hold opens the door to a lower move towards 3220; and a break above 3690 could rise to 3875, but looks unlikely for now.
EU Stocks 50 Weekly Chart
Source: IG, prepared by Richard Snow
The daily chart highlights more intermediate levels such as 3621, in the lead up to the ECB announcement.
EU Stocks 50 Daily Chart
Source: IG, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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