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Levels to watch: FTSE, DAX and Dow

A heavy macro week for global markets sees most indices on the back foot this morning, after a week in which indices rapidly shed ground.

Data on screen
Source: Bloomberg

The weekend has seen protests in Hong Kong and signs of a resumption of conflict in Ukraine, while the US dollar is still the dominant force in global markets, driven by the divergence in policy between the Federal Reserve on one hand and the central banks of the eurozone and Japan on the other.

The procession of economic data this week builds to a climax on Thursday and Friday when first the European Central Bank and then non-farm payrolls will help determine the tone of the final-quarter of the year.

FTSE could target 6730

The FTSE 100 continues to probe in the direction of 6630 but is holding above that level for the time being. Most traders are keenly watching the 6600 level, as a break below here would target the lows of early August in the direction of 6530.

The declines in the moving average convergence/divergence and daily relative strength index have not yet abated, which does lend credence to the idea that this market has not found a base just yet. Ahead of the ECB meeting on Thursday, volatility is likely to remain elevated. If the index can close above 6670 then this would suggest we are on course to the 200-day moving average at 6730.

DAX could find support at 9460

The 50-DMA is coming under pressure at the time of writing, with the 50% retracement at 9471 identified on Friday being lost as well. As with the FTSE, momentum indicators point to further declines in advance of Mario Draghi’s latest appearance in front of the financial press on Thursday.

The hourly chart has been in steady decline since it touched 9900 on 19 September, and has dropped through the 200-hour MA and the long-term upward trendline once again. The 9460 level may provide support, but any close below here targets 9400. A recovery during the week would put the index in a position to challenge the 200-DMA at 9576 and then on to the 100-hour at 9670.

Dow eyes 16,800

The 50-DMA around 16,940 has provided support for the Dow Jones over the past week, while bulls can take some comfort from the fact that the index still has a 17 handle on it. Any close below the 50-DMA targets 16,880, which lies close to the key long-term trendline that has been so important in maintaining upward progress for this index.

Last time this trendline was broken the 200-DMA was only 0.8% away, but now the gap has widened to 1.8%, allowing the bears more room to manoeuvre. The 16,580 level could be a make or break moment for the Dow, and with the daily RSI still in retreat the downside scenario appears to prevail ahead of non-farm payrolls on Friday. 

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