FTSE 100, DAX 40 and Dow drop on hawkish Fed testimony

FTSE 100 slides on hawkish Fed Chair comments

Having risen to last week’s high at 7,976, the FTSE 100 has been dragged down by the US Federal Reserve (Fed’s) Chair Jerome Powell’s speech to the US Senate Banking Committee on Tuesday in which he warned that the ultimate level of the fed funds rate could end up being higher than had previously been anticipated in view of stronger economic data.

The FTSE 100 thus slid through its January-to-March uptrend line at 7,911 but remains above its 7,876 January peak which is expected to offer support, were it to be revisited. Below it lies key support at 7,854 to 7,850 which consists of the 10 February and last week’s lows. As long as this significant support zone holds, the medium-term uptrend remains intact.

Only if the 7,850 level were to be slipped through on a daily chart closing basis, would a medium-term top likely be formed with the late January low at 7,708 then representing the next downside target.

Minor resistance now comes in at the early February high at 7,913 and also along the February-to-March resistance line at 7,955. Were the next higher 7,961 to 7,976 Tuesday and last Friday’s highs to be exceeded, the all-time record high close to the 8,050 mark would be back in the picture.

DAX 40 comes off its 14-month high

On Tuesday, the DAX 40 traded at level last seen in January 2022 before being pushed down again by hawkish comments from the Fed Chair Jerome Powell and an unexpected fall in German retail sales early on Wednesday morning. These declined by 0.3% month-on-month in January versus a forecast 2% rise and compared to a 5.3% slump in December.

On a more positive note, German industrial output growth rose to its strongest in 2 ½ years when it advanced to 3.5% month-over-month in January compared to an expected 1.4% rise and recovering from a downwardly revised 2.4% drop in December. This data helped stem the early morning decline in the DAX 40 index ahead of the early March high at 15,480.

Provided that the next lower late February and early March lows at 15,185 to 15,145 underpin, the medium-term uptrend will remain valid. Immediate resistance can be found at the 23 February high at 15,556, above which sits more significant resistance between the February and current March highs at 15,656 to 15,709.

Dow approaches key support zone

The Dow Jones Industrial Average has not only been underperforming its peers since the beginning of the year and has been the only US index so far trading in negative territory year-to-date in late February, but it is also rapidly approaching its major support zone at 32,474 to 32,397 on the back of hawkish comments by the Fed Chair Jerome Powell who said that interest rates could peak higher if data warranted, raising concerns about a slowdown in the US economy.

The Dow Jones Industrial Average thus wiped out its past two trading days’ gains in one huge Bearish Engulfing pattern on the daily candlestick chart and is fast approaching minor support around the 32,807 January trough.

Provided that the next lower 10 November and December lows as well as the 200-day simple moving average (SMA) at 32,474 to 32,403 aren’t being slipped through, the possibility of a bullish reversal being seen, remain in play. This could happen when Jerome Powell continues his testimony to the US House Financial Services panel at 3pm London time on Wednesday.

A fall through the 200-day SMA at 32,403 would put the November trough at 31,711 on the map, however, and, more importantly, would skew the odds towards the resumption of the 2022 bear market, taking the index back towards its October low at 28,630.
Immediate resistance can be spotted at the 20 January low at 32,935 and then at the 27 February high at 33,194.