US markets may be closed for the day but the overall tone of the week will be one of frenetic activity, with plenty of economic and corporate data to complement Mario Draghi’s appearance on Thursday.
Although it was a tough session in Asia overnight, European markets are holding on to early gains; however, they have edged back from the overnight highs seen at the end of last week.
Clearly the ECB meeting on Thursday will be the biggest event of the week, with quantitative easing expectations running very high. Essentially markets have begun to view ECB action as a done deal, which does rather raise the risk of disappointment, whether from a complete lack of action or action that is viewed as insufficiently aggressive.
However, it is not just a week for the ECB – we have a plethora of Chinese data, including GDP, along with the latest ZEW figures and UK unemployment numbers. The week rounds off with PMI figures from around the world on Friday, including China, the eurozone and the US.
FTSE below 6570
Friday saw the FTSE 100 push back towards 6600, but the morning action sees it dropping back below 6570 and the 50-day moving average. Notwithstanding the volatility from the end of last week, the index is still moving higher along an uptrend that goes back to the December lows.
A close back above the 50-DMA would clear the way for another attempt on the 6670 zone around the 200-DMA, followed on by a push to the late November highs around 6750.
On the downside, rising support off the December lows may be found around 6450, followed by the 6370 area.
DAX off multi-year high
The DAX has spent the morning retreating from the multi-year high that we saw on Friday evening, after a week that saw the index rally by over 6%.
Having moved so far so fast there is now a risk that the DAX is setting itself up for a fall, particularly if the ECB disappoints. Thus we look to rising trendline support off the early January lows, currently to be found around 10,020, while those of a cautious disposition will note that the index has become rather overextended, moving a significant distance away from the 50-DMA at 9750.
On the hourly chart the index is retreating from overbought levels and could look to challenge the 50-hour MA around 10,070, while further weakness could take the price back towards the 200-hour MA at 9830.
Dow RSI continues its decline
Although US markets are closed today the futures continue to trade. Like other indices the Dow Jones has been knocked back from the 17,600 high seen on Friday and remains stuck in its retreat from the January peak around 17,900.
The daily relative strength index continues to decline, and while the price is well off Friday’s lows there is as yet little sign that the fall of the past two weeks has come to an end. Ideally the index must close back above the 50-DMA around 17,710, which would allow the index the latitude to challenge the December highs above 18,000.
Below the current price we look for a test of the 100-DMA around 17,340 and the lows of the last week around 17,270.