​FTSE 100, DAX 40 and Nasdaq 100 stabilise in the short-term

​​FTSE 100 slide is taking a breather

The FTSE 100 reversed its recent short-term uptrend on Tuesday amid higher-than-expected US consumer price index (CPI) data which stoked fears that the Federal Reserve (Fed) will need to pursue a more aggressive tightening policy to combat inflation.

The index topped out at 7,515 on Tuesday when it formed a bearish engulfing pattern on the daily candlestick chart and slipped to 7,259 the following day before stabilising above this level.

Since this reversal pattern comes after an Elliott wave zigzag correction, a decline to below the 7,131 early September low is likely to ensue in the course of the coming days despite the UK inflation rate unexpectedly slowing to 9.9% in August from 10.1% in July, which was the highest reading since 1982, on Wednesday. It is the first time in 11 months that inflation dropped, amid a big slowdown in the cost of motor fuel prices. Having said that, core prices continued to climb to 6.3% year-on-year versus 6.2% previously.

Today minor support may be found along the breached one-month resistance line, now because of inverse polarity, support line at 7,230 while minor resistance is seen along the 55-day simple moving average (SMA) at 7,344 ahead of the 200-day SMA at 7,402.

DAX drop slows down

The DAX 40’s swift sell-off from Tuesday’s 13,570 high, as the US Bureau of Labor Statistics reported that US CPI rose by 0.1% in August and by 8.3% from last year versus an expected 0.1% fall and 8.1% rise respectively, has so far taken it to Wednesday’s low at 12,951 before levelling out in the short-term.

The index formed a bearish reversal candle on Tuesday and is now trading below its 55-day SMA at 13,183. A fall through Wednesday’s low at 12,951 would engage the early September low at 12,596.

Above the 55-day SMA at 13,183 minor resistance can be found between the early August low and late August high at 13,334 to 13,376. Further resistance comes in at the 20 July high at 13,376.

Nasdaq 100 stabilises above support line for now

The Nasdaq 100 took a 4% hit earlier in the week after the publication of higher-than-expected US CPI data but has so far managed to hold above its June-to-September support line.

The higher-than-expected inflation reading made some analysts change their forecast from a 75-basis point Fed rate hike next week to a 100-basis point hike and indicates that the central bank is likely to pursue an aggressive monetary tightening policy to reign in soaring inflation.

While this week’s high at 12,902 isn’t overcome, the odds favour a slide towards the June low in the coming weeks. The index has already been in a downtrend since the middle of August with a series of lower highs and lower lows being visible on the daily chart.

In the course of this week, it is likely that the three-month support line at 12,018 and also the early September low at 11,918 will give way with the mid-July low at 11,451 representing the next downside target. Slightly below it sits the late June low at 11,317 and further down the June trough at 11,037.

Any attempt of a bounce may already be thwarted by the June and early July highs at 12,180 to 12,227. If not, the 2 September high at 12,454 together with the 55-day SMA at 12,551 offer stronger resistance.