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Levels to watch: FTSE, DAX and Dow

Indices started the day on the front foot, making gains as optimism surrounding the European Central Bank continues to support risk appetite. US markets return to the fray in earnest today, as earnings season grinds on.

Prices on a trading screen
Source: Bloomberg

Although there is still enough going in markets to maintain traders’ attention, generally it feels as if we have entered a ‘waiting for the ECB’ frame of mind. The indecisiveness of trading at present can be summed up by the price action on the DX, which briefly moved into negative territory before recovering itself after the latest ZEW reading came in well ahead of expectations. 

FTSE looks for close above 6600

Yesterday’s move higher saw the FTSE 100 push through and close above the 50-daily moving average for the first time in 2015, as it continued the rally from the lows of last week.

A close above 6600 today would ensure that the upside scenario holds sway, with a target of the 200-DMA (around 6670) and then the 6770 area, the high of late November/early December.

The end of last week saw a decisive move above the 50-hour MA by the index, with this move confirmed by a rise of the 50-hour MA above the 200-hour. For the time being we are keeping an eye of yesterday’s lows around 6550, although the index may find support off the 50-hour too at 6570.

DAX retreats from all-time highs

The DAX continues to tiptoe back from the highs around 10,300 seen late on Friday. The uptrend off the January lows around 9500 is also intact, so the context of today’s move remains a pullback in a longer-term move higher, with the caveat that the ECB meeting on Thursday could threaten to upset the move.

Crucially the index continues to move out of overbought territory on the daily RSI, suggesting that the uncertainty that will increasingly come to the fore as the ECB meeting approaches will hand the advantage to the sellers for the time being.

While the index has found some support around the 50-hour MA, we could be seeing a potential double-top formation on the hourly chart, having had two attempts in three sessions to clear through the 10,300 level. Thus we are keeping a close watch on the low from yesterday around 10,200, since a break of this would suggest we are about to see a more significant move lower, potentially taking us back to the rising 6 January uptrend around 10,100.

Dow appears to stabilise after heavy selling

It is beginning to look as if US markets have found their footing after some heavy selling. The Dow Jones's bounce from 17,200 remains intact this morning, with the index heading back towards yesterday’s highs. The relative strength index continues to move upwards on the daily chart, adding to the impression that the early-year weakness has run its course.

The first target now is still the 50-DMA at 17,700, and as noted yesterday a close above this indicator takes us on to the all-time highs above 18,000.

The hourly chart sees the index attempting to move through 17,560 for the third time in three days. Close to this is the 200-hour MA at 17,585, and a solid move above here (which may, incidentally, be underway on the S&P 500) will put the bulls back in charge.  

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