Levels to watch: FTSE, DAX and Dow

Markets are striving to put in some good gains in the early part of the session, after a tumultuous start to the week yesterday.

Data on a screen
Source: Bloomberg

Screens have turned green across the UK and Europe as stock indices rally, but there is a long way to go before all the ground lost yesterday is recovered. The dollar is taking a rest after a strong day yesterday, when the economic data released aligned closely with Janet Yellen’s Friday speech. The dollar rally is back on, which will make more upside for equity markets rather difficult to achieve.

FTSE eyes 7050

Having fallen back below 7000 yesterday, the index is now doing its best to hold above the December trendline. This is not a line to be trifled with, having stemmed selling a number of times since December. However, previous bounces from the line usually came as the result of quick dips and then a rally, whereas this time we are sitting right on the line.

If we do go lower from here, we may see 6900 step in as support, as it has done throughout May, with the 100-day SMA lurking the background as well. A break below here targets the 200-day SMA at 6743.

A bounce from this point must first clear the 50-day SMA, which would then allow it to challenge the 7050 zone where buying momentum faded over the past four weeks.

DAX in retreat

Having failed to breach the 50-day SMA (11,820), the DAX continues to retreat, with daily stochastics giving a firm bearish crossover. Rising support may be found first at the 100-day SMA (11,372), and then the October 2014 trendline, but this is still some distance away. The failure to push on beyond 12,000 now suggests that the downside holds sway, and so long as the price remains below the 14-day EMA (11,682) my outlook is bearish.

Dow could target 18,365

The index failed to consolidate around its recent all-time highs, hit by a resurgence in the dollar. Now we see if the 18,000 area/50-day SMA can continue to hold; a continued move lower would then suggest a test of support around the 17,800 area, or even the 17,600/200-day SMA zone.

A bounce from this point would target the recent all-time highs at 18,365, should we see buyers step in as the dollar pauses for breath.  

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