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EU Stoxx 50 Forecast: Bears Ready to Drag Index Lower on Rising Virus Cases?

EU Stoxx 50 Forecast: Bears Ready to Drag Index Lower on Rising Virus Cases?

Thomas Westwater, Analyst

EU Stoxx 50, Coronavirus, Brexit – Talking Points

  • Bears briefly break summer price range to the downside
  • Lack of upcoming fundamental catalysts leaves focus on virus
  • Rising Covid cases across Europe alarms policy makers

EU Stoxx 50 Index price action broke down last week, in line with US equities, as the index fell to a new multi-month low amid a resurgence of wide-spread volatility in global financial markets. Monday saw a return of risk appetite with the index rising nearly 2.5% and bringing it back into a range established through the summer months. Now, with price clinging to levels just above the July lows, bears appear to be well positioned for another push lower.

EU 50 Stoxx Index (Daily Price Chart)

EU 50 Stoxx price chart

Chart created with TradingView

While the index has managed to record a significant gain from its March low, year-to-date price performance sits nearly 11% lower. Bullish momentum stalled out following the July 21 high at 3451.2, as optimism surrounding a solid “V-shaped” recovery dimmed. The post-March high hasn’t been challenged since.

With the technical setup appearing to favor a move to the downside, bulls will likely need a decisive shift in risk sentiment or a fundamental catalyst before any significant move to test the upper range of price forms.

COVID Cases Tick Higher Across Major EU Economies

Covid cases Spain France Germany EU

Source: Johns Hopkins, Coronavirus Resource Center

Granted that, the coming week offers little in the cards for a fundamental catalyst according to the DailyFX Economic Calendar. Ongoing Brexit talks between the EU and Britain continue to underwhelm, but any tangible steps forward may provide a boost in risk appetite. Still, the alarming trend higher in Covid cases may cancel out any positive Brexit news, if any.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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