Levels to watch: FTSE, DAX and Dow

Hopes of a quiet morning were dashed as the Swiss National Bank pulled the floor out from underneath EUR/CHF, causing ripples of volatility to spread around global markets.

A trader looking at data
Source: Bloomberg

Stock markets were rattled by the SNB’s move, a classic demonstration of the value of surprise when dealing with currency markets. Other central banks might prefer to try forward guidance – the SNB seems to prefer the shock approach.

It will take time for the impact of this event to be digested by markets, and we have seen rapid moves both up and down across indices. Such a sudden move in FX is bound to have after-effects for traders with positions in a variety of markets, which may lead to some forced selling and engender further weakness in some markets.

FTSE RSI retreating

Further losses in oil prices are weighing on the London index, but the majority of the downward move again this morning can be attributed to the shock from the SNB move.

Crucially the FTSE 100 finds itself pushing below the lows of last week, having tested 6300 in early trading this morning. A daily close above 6370 would still suggest the buyers have some power, but any close below last week’s closing lows will set the cat amongst the pigeons.

The daily relative strength index is in full retreat, currently sitting around the 35 mark, and any dip below 6300 is likely to take us into oversold territory. If 6300 is lost then we look towards the December closing lows around 6200, which would be the third such visit to these levels in four months.

Only a close back above 6500 really negates the negative outlook here, with the 50-day moving average at 6570 being the first upside target.

DAX gains capped by 9950

Before the SNB move the DAX had continued to sit happily above its uptrend line from 6 January. However at present it is fighting hard to recover this trendline, having been knocked sharply lower, as far as 9600, during the Swiss-related excitement.

The index did dip as far as the 200-DMA during the course of the morning but it has bounced back, moving back above the 50-DMA as well. For now gains remain capped by the 9950 area, while support is coming in around 9750.

A close below the hourly uptrend from 6 January would be a very negative signal, particularly if combined with a close below the downtrend line from the December highs, i.e. below 9800. In that case we look to support around 9650.

Dow below 50-hour MA

The Dow Jones continues its retreat, although as was the case yesterday dips below the 100-DMA have been bought. Like the FTSE the daily RSI continues to decline, with any close below 17,400 likely signaling that further weakness is ahead. In that case we may be treated to a test of the 200-DMA – currently around 17,040 – but if the 100-DMA holds a move back towards 17,720, around the 50-DMA, is still potentially on the cards.

On the hourly chart the index has fallen below the 50-hour MA once more, with this moving average firmly below the 200-hour as well. Yesterday’s low at 17,300 becomes a first target – given that dips below here on 6 January, 14 January and this morning have all been bought.

Any break to the upside targets 17,600 in the short term, followed on by the recent peaks at 17,900. 

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