Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

European indices: DAX sits on a knife edge

European indices face uncertain times as central banks take divergent stances, with the DAX showing signs of a potential correction.

Source: Bloomberg

BoE's cash rate on top of 'Table Mountain'

Last week saw the Federal Reserve (Fed) and the BoE deliver hawkish holds in contrast to the European Central Bank's (ECB’s) dovish hike the previous week. The BoE was empowered to keep its official cash rate at 5.25% after the release of a cooler-than-expected August consumer price index (CPI), just a day before the Monetary Policy Committee (MPC) meeting.

Unless there is an upside in inflation or wage growth from here, the BoE’s official cash rate is now on top of Table Mountain, to borrow the analogy of the BoE’s Chief economist Huw Pill.

For those unfamiliar with Table Mountain, it looks exactly like the name suggests. Pill’s analogy warns that rates in the UK will need to remain higher for longer. In the current climate, where activity data is already sliding, this increases the chance of a recession in the UK.

For those looking for further evidence of why the ECB delivered a dovish hike the prior week, last night's German ifo business climate index printed at 85.7 in September, the weakest level since October 2022 when fears of a European recession and European energy crisis were at their greatest.

The ifo print likely confirms the ECB’s rate hiking cycle is over and that the German economy will likely lead Europe into recession.

DAX technical analysis

During September, the view has been that the correction in the DAX, which started from the late August 16615 high, was missing a leg lower and had further to go.

The overnight close below the 200-day moving average at 15629 and break of the mid-August low at 15511 warns that the missing and final leg (Wave C) of a three-wave ABC pullback has commenced, which targets a move to wave equality at 15000.

Should the pullback play out as expected and signs of basing emerge in the 15000 area, we expect to see the uptrend resume, which would see the DAX test and break the July 16615 high.

DAX daily chart

Source: TradingView

FTSE technical analysis

In early September, contrary to our expectations, the FTSE rebounded from the critically important 7200 level, initially supported by BoE Governor Andrew Bailey's dovish comments in late August and then by the dovish ECB meeting.

The hawkish hold from the BoE and the Fed last week appears to have capped the rally at 7750 and prompted the FTSE to fall back within its range and below the 200-day moving average at 7637. While the FTSE remains below resistance at 7750, there is a good chance of further rotation within the 7750/7200 range.

Aware that if the FTSE were to see a sustained break of support at 7200, there is scope for it to extend its decline towards 7000 before a retest of the 2022 lows 6800/6700 area.

FTSE daily chart

Source: TradingView

TradingView: The figures stated are as of 26 September 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.

Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.