Levels to watch: FTSE, DAX and Dow

The Republicans scoring an electoral rout in midterm elections has led to an overt appreciation among equity investors.

Data on screen
Source: Bloomberg

US indices are pushing to brand new highs on expectations that pro-business reforms and deregulation will be enacted under the newly elected congress. The same level of positivity and bullishness hasn’t had the same effect on European indices, which remain quite some distance below the highs established back in September.

German factory orders have once again failed to meet the consensus expectation which is helping to stoke the notion that a technical recession in the eurozone powerhouse is all but inevitable.

There is plenty of macro to get the teeth into today, with rate decisions from both the Bank of England and the European Central Bank. No policy change is expected from either bank but with the euro languishing at a two-year low against the dollar, the ECB press conference will naturally be the event to watch today. 

FTSE could test 200-H MA

The FTSE 100 has so far been unable to break towards the 6600 level with trendline resistance coming from the highs established back in mid-September. Unable to break the key 61.8% retracement level at 6485 implies that we could be looking at rangebound to downside moves on the UL benchmark in the near-term/Price action is now trapped in a narrow range with 6530 capping gains while 6470 is providing a floor.

The hourly chart sees the price supported by the 50-hour moving average at 6500, and any moves down through here will likely see the 200-H MA tested. This metric has provided a decent bounce area over the past few days. It comes in at 6466 and below that lies 6444.

DAX eyes 9300-50

Inability to muster the momentum to push through 9350 has become something of an issue for the German index over the past few days. Maybe the market is coiling for a move upwards but I wouldn’t expect that the ECB presser will be the synergist for this today.

The 61.8% retracement from the highs of September 19 to the lows of October 16 coincides with the 50-day moving average as well as trendline resistance from the highs near 9900. So, 9300-50 is a very significant level and will need to be cracked with conviction if the DAX is to mirror its US counterparts and attempt a new high. The next target on the upside is the 100-DMA at 9440.

The 100-H MA is supporting the upside coming in at 9270. Any breaks below this should fund support at 9230. The 200-H MA is key to the short-term trend, arriving at 9160 in confluence with the 50% retracement of the same aforementioned move.

Dow bulls target 18,000

A new all-time high for the Dow Jones yesterday may well lead to some profit-taking today ahead of the all-important non-farm payrolls tomorrow. The index has succeeded in gaining a staggering 10% since hitting a low of 15,860 a mere three weeks ago. The wild swings in the index have been dictated to some extent by moves in the oil price and now the bull case is for a move towards 18,000.

Daily relative strength index is showing that the market is a little overbought at the current level so there’s a chance that we could see the index retrace some of yesterday’s moves with support likely to be found at 17,400-10.

Short-term trendline support is intact from the October 16 lows with the 50-H MA lending support and the 100-H MA coming in below that at 17,384. Any puncture of this metric would see the Dow retrace towards 16,315. The hourly RSI is indicating bearish divergence which implies sideways to a downside bias in the short-term.

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