European indices open higher after hefty declines last week

​FTSE 100 recovers from last week’s lows

The FTSE 100 opened up today and thus continues its recovery rally from last week’s 7,227 low, made close to the current May low at 7,157, amid volatile trading due to recession fears, a near 50-year low in UK unemployment data and the annual inflation rate rising to a 40-year high at 9% in April compared to 7% in March.

Last week’s high at 7,545 is back in the picture, a rise above which would target the 7,621 early May high. Above this level sits key resistance in the 7,657 to 7690 area which is made up of the January 2020, February, and April highs and as such is likely to cap. 

Support below the 55-day simple moving average (SMA) at 7,433 and the 2 May low at 7,390 is seen between the 11 May high and the 200-day SMA at 7,354 to 7,326.

Provided the current May trough at 7,157 isn’t slipped through, the bulls retain the upper hand.

DAX 40 retests its downtrend line after volatile week

The DAX 40’s recovery rally from last week’s 13,685 low is set to continue ahead of today’s German Ifo Business Climate publication for May which is forecast to come in at 91.5 versus 91.8 in April.

This year’s downtrend line at 14,196 is likely to be breached today with last week’s high at 14,282 being back in sight. This should remain the case while the DAX stays above last week’s trough at 13,685 on a daily chart closing basis.

Together with the 14,315 early May high, the 14,282 level offers a resistance zone for the index, a rise above which would have clear bullish implications, however, targeting the 14,599 April high. For a longer-term bullish picture to emerge, a rise and daily chart close above the late April high at 14,599 needs to ensue.

Slips are likely to find support along the 55-day SMA at 14,056 with further support sitting between the mid-April low and Wednesday’s high at 13,882 to 13,875.

Further minor support can be found at the 13,807 2 May low and at the 13,538 April trough.

Dow tries to stabilise after dismal week

The Dow Jones Industrial Average fell to last week’s 30,637 low, the lowest level seen since March 2021 when the index formed an interim bottom at 30,545, as growth and inflation worries hit.

The index is expected to stabilise ahead of Tuesday’s US S&P Global manufacturing and services PMI data release for May, at least in the short-term, and try to revisit the February and March lows as well as its one-month downtrend line at 32,234 to 32,440 over the coming days, now that a “Hammer” has been formed on Friday’s daily candlestick chart, that is to say a bullish reversal candle.

While the Dow doesn’t manage to heave itself back above last week’s high at 32,756, though, the downtrend remains very much entrenched since a series of lower highs and lower lows can clearly be made out on the daily chart.

Failure at last week’s low at 30,637 would engage the 30,545 March 2021 low and most probably also the 38.2% Fibonacci retracement of the pandemic uptrend and pre-pandemic high at 29,800 to 29,568.