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Levels to watch: FTSE, DAX and Dow

Traders are adjusting to seeing a more concerted outbreak of red on their screens this morning, as the general drift in equity markets persists.

Man looking at data on a screen
Source: Bloomberg

News of fines for major banks in the FX-rigging probe has had a limited effect on markets, but this will be a long-running problem for the financial sector as investigations continue. The main event of the day is going to be the UK’s unemployment figures and then the Bank of England’s inflation report, which will primarily interest forex markets.

Equity indices still look to be running out of momentum, a process that has been in the offing for some time now. While it has not turned into a full-blown move lower, the mid-month dip would provide many with the entry point which they have been looking for in recent weeks. Comments from the Federal Reserve’s Charles Plosser this morning regarding rate increases by central banks have also added to the negative tone to the early part of the session.

FTSE could find support at 6600

The negative divergence highlighted yesterday on the hourly chart is taking the FTSE 100 lower this morning, with the index probing levels below the 50-hour moving average for the first time since 3 November. This moving average did well to hold the market up over the past week or so, and with this broken we now look towards the 100-H MA at 6588 and then the 200-H MA at 6550.

The 6600 level is still likely to provide some support in the short-term, and while the index holds above here we still look towards the 6690 zone as potential resistance.

DAX RSI turns lower

Having stalled at 9400 in recent sessions the DAX is now testing the water around the 50-day moving average. A close below this opens the way to 9200, with the daily relative strength index having begun to turn lower as well.

I have been strenuously highlighting the turn lower in the stochastic momentum index, suggesting that the rally had begun to lose steam. On the hourly chart 9250 is also possible support, while below that we look to 9225. Should the situation change dramatically then 9000 will be major support, while any recovery during the session today would need to close above 9400 before moving towards the 200-DMA at 9507.

Dow eyes 17,500

The 17,600 level continues to stand as resistance for the Dow Jones, as the index begins to work off its overbought condition. The risk here is that the index will have a more rapid correction, given the extended distance to the 50-DMA (currently 3.3%).

The Dow broke through its hourly uptrend at the end of last week, and since then has skated along just above the 50-H MA. Now it has fallen below this indicator and is testing the 100-H MA at 17,570. A first target is 17,500, followed by 17,445 and then 17,300. As with the other indices mentioned herein however, any pullback will still likely be a buying opportunity ahead of the year-end rally.  

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