Levels to watch: FTSE 100, DAX and Dow

European markets look set for further downside despite overnight bounce. However, the dollar weakness looks set to ensure US markets outperform.

Market data
Source: Bloomberg

FTSE 100 breaking higher after yesterday’s declines

The FTSE 100 continues its recent descending triangle formation, with the creation of lower highs accompanied by flatlining lows. While we have seen sharp gains overnight, there is a strong chance that we will see the price form yet another lower high before moving back towards the crucial 7294 support level.

As such, a move into the 70%-76.4% retracement zone looks like an interesting area for shorts, where a bullish outlook would only come into play with a break above 7446.

DAX rebound looks unlikely to last

The DAX is pushing higher after a triangle breakdown took the price into a five-month low. While we are seeing a rebound now, this looks likely to be a precursor to another move lower. Perhaps when Kim Jong Un decides to ramp up tensions once more. In any case, there is a good chance of short-term gains, yet such gains would be perceived as a potential shorting opportunity.

A break through 12,176 would be required to negate this bearish outlook. Look out for potential shorting opportunities between 12,058 (61.8%) and 12,103 (76.4%).

Dow punches through key resistance level

The Dow Jones has performed remarkably well, with the weakening dollar helping US markets outperform. With the price having pulled back into the wider 21,634 level (76.4% retracement), we have seen yet another 76.4% pullback yesterday, with the price rallying up through 21,914.

That means we have now seen the August downtrend negated, with the creation of a higher lower followed up by a new higher high. As such, while we could easily see another strong move lower from here, it would take a break below yesterday’s low of 21,646 to provide a renewed bearish outlook. Until then, there is a good chance that any move lower from here is a retracement of the rally from 21,646, before the market moves higher once more.

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