CAC 40 Under Pressure as France Struggles to Contain the Virus

2021-01-25 10:30:00

Daniela Sabin Hathorn,

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Key Talking Points:
CAC 40 Daily chart

Key Talking Points:

France imposes stricter restrictions to try and contain the virus
CAC 40 struggles to attract buyers

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Markets have digested the realization that the rollout of the vaccine campaign doesn't mean an immediate solution to the current economic and social problems, leading to a bit of a volatile week as risk appetite was undecided.

In recent days we have seen many countries needing to impose tighter restrictions to try and stop the continued rapid spread of Covid-19. France is one of them, as the government has imposed a strict curfew as the number of daily infections continues to rise, with the seven-day moving average now above 20,000 despite restrictions being in place since early December.

Europe is facing a very “serious situation” overall warned the President of the European Commission, and many economists believe that a double-dip recession is now inevitable in the Eurozone as the end of restrictions seems further away than ever, worsening the outlook for the current economic slump.

The CAC 40 has started the week a little softer and is threatening to fall below 5,550 as sellers seem to have the upper hand. Positive sentiment in the midst of last week saw the French index attempt to 5,670 but was rejected and sent back down to finish the week bordering the 5,500 line. Momentum indicators are giving mixed signals as the moving averages a placed in bullish order, but the stochastic and MACD seem to signal there is further room to fall before oversold conditions appear.

For now, the 76.4% Fibonacci (5,495) remains as strong short-term support, having held most of the bearish pressure since mid-November. Further downside would likely see some buyer resistance at the 5,400 mark but it isn’t until 5,310 that strong support can be seen. To the topside, 5,628 continues to offer significant resistance followed by 5,720 where recent highs were rejected.