European indices pause post Fed rate hike
Technical outlook on FTSE 100, DAX 40, and Dow following FOMC meeting.
FTSE 100 struggles around mid-May high
The FTSE 100 is struggling to overcome its mid-May high at 7,545 after four consecutive daily gains as traders mull yesterday’s Federal Open Market Committee (FOMC) minutes.
A minor retracement back towards the 55-day simple moving average (SMA) at 7,461 may be witnessed as the index pauses its advance with further minor support being seen at the 2 May low at 7,390 as well as between the 11 May high and the 200-day SMA at 7,354 to 7,332.
A rise and daily chart close above this and last week's highs at 7,545 to 7,563 would lead to the 7,621 early May high being eyed next. Above this level key resistance remains to be seen in the 7,657 to 7,690 zone which consists of the January 2020, February, and April highs and as such is likely to cap.
DAX 40 remains capped by 2022 downtrend line
The recovery rally in the DAX 40 from last week’s 13,685 low stalled at this year’s downtrend line with the index trading below the 55-day SMA at 14,102 since yesterday as the German GfK consumer confidence data for June came in at a worse than expected -26.0 compared to a revised -26.6 record low in May.
This year’s downtrend line at 14,160 is likely to be retested, however, provided that the DAX 40 remains above yesterday’s low at 13,869 during a quiet trading session today as much of catholic Europe celebrates Ascension Day.
If the downtrend were to be breached, this week’s high at 14,228 would also need to be exceeded for key resistance at the early and mid-May highs at 14,228 to 14,315 to be reached next.
An advance and daily chart close above the 14,315 early May high would have medium-term bullish implications and would bring the 14,599 April high into focus.
Slips below yesterday’s 13,869 low may find support at the 13,807 2 May low or at the much lower down 13,538 April trough.
Dow tries to break through its five-week downtrend line
The Dow Jones Industrial Average’s recovery rally from last week’s 30,637 low is trying to break through its five-week downtrend line at 32,025 whilst approaching the 32,234 February low, now that the US FOMC minutes have been published.
These did not state anything new and showed that most policy members judged that 50 basis point increases in the Federal Reserve funds target rate range would be appropriate for the next couple of meetings as they raised rates as expected by half a point to 0.75%-1%. This was the second consecutive rate hike and the largest increase in US borrowing costs since 2000.
Above the 32,234 to 32,340 February and March lows beckons last week’s high at 32,756 which needs to be exceeded for a lasting bullish reversal to take shape. Minor support below yesterday’s low at 31,728 can be spotted at Tuesday’s low at 31,361 as well as at the 31,227 12 May low.
Only 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.
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