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EU Stocks, DAX: European Stocks on the Brink of Technical Collapse

EU Stocks, DAX: European Stocks on the Brink of Technical Collapse

Richard Snow, Analyst

EU Stocks, DAX, Russia-Ukraine Analysis:

  • Western sanctions headed for Russia after troops deployed to eastern Ukraine
  • EU Stocks rebounds off crucial March 2020 (Covid) support level
  • DAX attempting to pullback after breakdown of key support
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Sanctions Enroute as Russia Mobilizes Troops to Donbas Region

The US, UK, Japan and European allies are due to announce fresh sanctions against Russia in response to an order given by Putin to mobilize Russian troops into the newly recognized Donetsk People’s Republic and Luhansk People’s Republic, otherwise known as the Donbas region.

Putin insisted that the deployment of troops to the area is necessary as a “peacekeeping” effort while the US and its allies have viewed it as a violation of Ukraine’s sovereign borders. The unfolding situation has been the dominant force behind recent market movements and looks set to continue until a diplomatic solution can be achieved.

European Equities Key Technical Levels

In general, when markets reach a ‘top’, price action and momentum tends to slow down, consolidate and failed attempts to trade higher are also observed. This seems to be the case with European equities at the moment when viewed from a technical perspective as multiple levels of support have been taken out in recent trading; opening the door to a further collapse.

EU Stocks Index

EU Stocks attempt to recover from yesterday’s sizeable drop. Markets remain reactionary to developments in Ukraine and as such, more volatility can be expected. Price action approached and respected a crucial level of support which coincides with the 2019 peak before the spread of the coronavirus (refer to weekly chart).

Today, the pullback has already moved above 3963 with the zone of resistance (4029 – 4033) in focus. Should the situation in Ukraine intensify, the pullback may simply serve as a opportunity to re-enter the existing downtrend.

EU Stocks Daily Chart

EU Stocks, DAX: European Stocks on the Brink of Technical Collapse

Source: IG, prepared by Richard Snow

The weekly chart highlights the March 2020 high - which held firm - and the crucial 3607 level of resistance should we witness an acceleration on the current trend of lower highs and lower lows.

EU Stocks Weekly Chart

EU Stocks, DAX: European Stocks on the Brink of Technical Collapse

Source: IG, prepared by Richard Snow

DAX Index

However, the situation for the DAX looks somewhat more advanced than the EU Stocks. By ‘more advanced’ I am referring to the decline and that the DAX has already broken below a crucial zone of support.

The DAX daily chart highlights the important psychological level of 15000 and how price action often dropped to or slightly below this level on a number of occasions. Yesterday’s large move lower, saw price action trade below 15000 as well as the zone of support (14810 – 14840).

A downside continuation remains possible as prices broke below the prior range of sideways movement while a ‘death cross’ has also appeared on IG charts (includes a Sunday candle). Like EU Stocks, the DAX attempts to regain yesterday’s losses however a close below 15000 leaves the index vulnerable to continued selling.

DAX Daily Chart

EU Stocks, DAX: European Stocks on the Brink of Technical Collapse

Source: IG, prepared by Richard Snow

Looking at the longer term, weekly chart, we see the break below the first dotted support level (15000) with 14190 proving so much to handle for sellers. Renewed selling is likely to ensue should tensons escalate in the Ukraine, highlighting 14190, 13600 – 13800 and 13210 as support.

DAX Weekly Chart

EU Stocks, DAX: European Stocks on the Brink of Technical Collapse

Source: IG, prepared by Richard Snow

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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

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