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Levels to watch: FTSE, DAX and Dow

European indices look likely to leapfrog their US counterparts, with a bullish outlook for the FTSE 100 and DAX coming despite a weaker outlook for the Dow Jones.

US traders
Source: Bloomberg

FTSE continues to gain

The FTSE 100 has shrugged off losses in the US, with the index pushing to a new high once more yesterday. Despite the pullback we have seen overnight, it looks likely that we will see the index rally once more.

An hourly close above 7330 would signify a breakout, which would be expected to bring further gains. As long as we do not see a break back below 7264, then further upside seems the likeliest option from here.

DAX bouncing after deep retracement

The DAX managed to retrace into the 70% pullback at 11,490 yesterday, with price rising in the aftermath. While there is no guarantee that this is the end of the weakness, any pullback into the 11,471-11,490 zone represents value for longs.

If we do not see a break back below 11,401, then the price action over the past ten days seems like a retracement of the rally from 11,401 to 11,696.

Could Dow rally be short-lived?

The Dow Jones has been turning over this week, with higher highs turning into lower lows. That portrays the current rally as a likely short-term period of strength, which is expected to spark another leg to the downside.

We would need to break back above 19,977 to negate this view. The wider picture portrays a potential double top in the making, with a break back below 19,720 required for that to come into play. For now, it looks likely we will see price follow on from recent reversal signals, with a bearish view confounding the bullish outlook in Europe.

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