European equity indices: what's next for DAX and FTSE ahead of France and UK elections?

A relief rally for European stock markets occurred overnight after the first round of the French elections confirmed a win for Marine Le Pen's far-right National Rally (RN) party. This win was confirmed with a lower share of the vote relative to polls leading into the election.

Post-election market response

Comments after the vote from parties to the centre and to the left suggest there will be a joint effort to block RN from attaining an absolute majority. This has led markets to price out many of the more extreme outcomes in favour of a hung parliament. However, uncertainty remains, with investors set to closely monitor how the negotiations between parties looking to join an anti-RN block play out in the coming days ahead of the 7 July run-off.

UK election outlook

In contrast, the lead-up to Thursday's UK General Election has provided more certainty, with the latest polling continuing to suggest Keir Starmer's Labour Party will comfortably win power. A colleague and Head of Market Analysis at IG has compiled an insightful preview, including key timings on UK Election Day, which you can read here.

FTSE technical analysis

After holding a bullish stance on the Financial Times Stock Exchange (FTSE) since mid-March, which caught the FTSE's blistering run higher, we moved to a neutral bias ahead of the Bank of England (BoE) meeting on 9 May, looking to rebuy a pullback.

Although uncertain, we have seen the lows following the FTSE's 4.3% pullback from the May 8474 high. Therefore, we hold a positive bias, provided the FTSE remains above horizontal and uptrend support at 8050/8000.

A sustained break below support at 8050/8000 would signal that a deeper decline is underway and require a shift back to a neutral bias.

FTSE daily chart

DAX technical analysis

The view is that the DAX completed a five-wave rally from the October 14,630 low to the mid-May 18,892 high. Within Elliott Wave theory, a Wave V is usually the final leg of an impulse move before a correction unfolds.

The break below short-term support at around 18,600/400 in mid-June confirmed that the rally had terminated and that a deeper corrective pullback had commenced.

We suspect that the DAX is currently tracing out the second leg, Wave B, of a three-wave 'ABC' correction. Once Wave B is complete, we expect the DAX to commence another leg lower, Wave C, towards support coming from the mid-April 17,626 low.

Pending signs of basing in the 17,700/500 area, we will be looking to be a buyer in anticipation of the uptrend resuming.

DAX daily chart

• _{Source: TradingView. The figures stated are as of 2 July 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}