European indices up as concerns of faster rate hikes ease
Outlook on FTSE 100, DAX 40 and Dow after last week’s bullish reversals.
Recovery rally underway in FTSE 100
The FTSE 100 begins the week on a stronger footing on the back of last week’s firm recovery rally in US and Asian equity markets which snapped their recent three-week losing streaks as UK inflation hit a 40-year high amid its largest rail strike in 30-years which ended on Saturday.
The index managed to find support at 6,992 on Thursday, not far above its previous week’s three months low at 6,966, before rising and closing above its 21 June high at 7,193 on Friday as investors bought stocks at lower levels and worried less about future rate hikes.
A short-term bottom has thus been confirmed by Friday’s bullish reversal with the 16 June high and 200-day simple moving average (SMA) at 7,331 to 7,359 now being in focus.
Slips may find support between the June 21 high at 7,193, the May low at 7,157 and the 14 June low at 7,135.
DAX is trying to stabilise
Last week the DAX 40 dipped below its previous week’s 12,944 low by falling to 12,839 on Thursday ahead of Friday’s German ifo Business Climate for June which came in at a weaker than expected 92.3 versus an anticipated 92.8 and 93.0 in May, before recovering in line with European, US and Asian equity markets.
Since last week’s low has not been accompanied by a negative reading of the daily 9-period Relative Strength Index (RSI), positive divergence can be made out on the daily candlestick chart. This increases the odds of a bullish reversal taking shape, but for this to happen, a rise and daily chart close above the 21 June high at 13,444 will need to be witnessed.
Ideally the mid-June high at 13,676, which was made within the 13,681 to 13,743 gap, should be overcome as well. A fall through last week’s low at 12,839 on a daily chart closing basis could lead to the March low at 12,432 being revisited.
Dow sees significant rebound
The Dow Jones Industrial Average accelerated higher on Friday and from a technical perspective, importantly, closed its 31,146 to 31,381 June gap as concerns of higher and faster rate hikes eased. This after the University of Michigan released US longer-term consumer inflation expectations, which settled back from a 14-year high.
The February and March lows as well as the April-to-June downtrend line at 32,234 to 32,340 are in focus for this week. Slips should find support at the 31,227 12 May low, the 30,377 13 June high and also to the 31,016 15 June high.
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