European indices: ECB, BoE rate decisions fuel optimism in Europe and UK amid geopolitical risks

Geopolitical tensions and economic prospects

It's hard to pen an article at this point without first acknowledging the risks coming from geopolitical tensions in the Middle East. However, if we could look past geopolitics for the moment, there are some encouraging signs emerging in Europe.

ECB's monetary policy and its impact

Following the ECB's divided decision to remain on hold in September, even some of the more hawkish ECB members have signalled greater comfort with the inflation outlook. Additionally, there are indicators that the Chinese economy, to which Europe has significant exposure, has stabilised. This is further supported by discussions of additional stimulus measures set to be unveiled by Chinese authorities in the coming weeks.

Optimism in the UK's economic landscape

In the UK, optimism has surfaced after the BoE decided to keep rates on hold in September. Pressure seems to be easing in the labour market, and inflation is cooling, following the Bank of England's unprecedented monetary tightening.

Further confirmation is expected in UK data to be released this week, including:

• UK labour market data set for release tonight should indicate that headline Average Weekly Earnings have eased to 8.3% 3M YoY in August, down from 8.5% previously. Average Weekly Earnings Ex-Bonus are projected to remain steady at 7.8% 3M YoY.
• UK inflation data scheduled for Thursday night is expected to show a decline in headline inflation to 6.6% YoY in September, compared to 6.7% in the preceding period. Core inflation is anticipated to soften to 6% YoY in September, down from 6.2% YoY in August.

DAX technical analysis

In September, we projected that the DAX would continue its downward trajectory, targeting the 15,000 support level in its third and final wave (Wave C of an ABC correction) to conclude a correction from its late August high of 16,615.

Signs of basing that emerged in early October suggest the correction is nearing completion. To confirm this, a sustained close above the 200-day moving average, set at 15,725, is required. Achieving this would establish a test and potential breach of the July high of 16,615 by year's end.

Be aware that if the DAX were to experience a sustained break below the 15,000 support level, this would signal a deeper pullback is likely, targeting 14,650.

DAX daily chart

FTSE technical analysis

The FTSE continues to trade sideways maintaining horizontal support at 7200 and facing downtrend resistance at 7720/7750, which originates from the February high of 8047.

Should the FTSE achieve a sustained break above resistance at 7720/7750, it could trigger a year-end rally towards 8000/8050. Be aware that until this occurs, further range trading is likely, including a possible retest of the range lows at 7200.

FTSE daily chart

• _{TradingView: the figures stated are as of October 17, 2023. 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.}