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DAX Under Pressure, FTSE Resilient as Risk Assets Start the Week on the Back Foot

DAX Under Pressure, FTSE Resilient as Risk Assets Start the Week on the Back Foot

Zain Vawda, Analyst
  • DAX 40: Under Pressure as Unscheduled Nord Stream Maintenance Concerns Grow.
  • FTSE 100:Remains Resilient in the Face of Fading Stock Rally.

Equities Q3 2022 Forecast

DAX 40: Under Pressure as Unscheduled Nord Stream Maintenance Concerns Grow

The Dax continued its fall from last week’s inflection point, declining 280 odd points to start the week on the back foot. There may be more pain ahead for the index as worries over a German recession are ramped up by comments from the Bundesbank. The German central bank said it sees more wage pressures ahead as well as inflation of around 10% in the Autumn as government aid expires. The bank also reiterated its belief that a recession is now more likely given the current economic outlook.

Natural-gas prices in Europe surged once more as fears returned about a prolonged halt in supplies through a major pipeline, jeopardizing an already struggling economy. The key Nord Stream pipeline will be shut for three days of maintenance on August 31st, with fears that supply will not return to normal once the maintenance is complete. The German government warned Moscow could further reduce supplies and reiterated a call to conserve energy.

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The German football body is set to hire Deutsche Bank for itsmedia rights sale in what is a coup for the bank. Chief Executive Officer Christian Sewing lobbied some large German football clubs to get the deal over the line as the fight for broadcasting rights of European Football heats up. The German football body is considering selling as much as 20% of the unit, which could be valued at about EUR18 billion (USD18 billion), the people said.

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DAX 40 Daily Chart – August 22, 2022

Source: TradingView

From a technical perspective, we had a bearishengulfing candlestick close on the weekly chart which indicates the potential for more downside in the week ahead. This move began from the key psychological 14000 level, while we now approach 38.2% fib level which may provide support. The 50-SMA which lines up with the fib level will need to be broken before we can see any further downside.

We have seen a 280-point selloff this morning with a pullback to the 13450-13550 area providing would-be-sellers an opportunity to get back involved. Given the overall market sentiment and outlook, selling on any rallies seems the most effective play at the minute.

Key intraday levels that are worth watching:

Support Areas

  • 13275
  • 13140
  • 13000

Resistance Areas

  • 13500
  • 13760
  • 14000

Psychological Levels and Round Numbers in Trading

FTSE 100: Remains Resilient in the Face of Fading Stock Rally

The blue-chip index was led lower by commodity stocks in European trade as falling oil prices saw Shell PLC and BP PLC come under pressure. This comes on the back of Iranian oil supply possibly returning to markets following a discussion between the US and allies on reviving the 2015 nuclear deal. The index recovered to trade flat as we approach the US open. The FTSE continues to display resilience thanks to its defensive leaning as well as the impact of a weaker pound on the indexes’ large number of dollar-earning stocks.

The possibility of continued strike action continues to weigh on the UK economy with renewed warnings to start the week. Around 2000 dockworkers at the Port of Felixstowe began an eight-day walkout on Sunday, halting the flow of goods through the largest entry point for containerized imports and exports. The strike could potentially disrupt more than USD800 million in trade. Companies are already anticipating an increase in delivery times and expenses that will add further pain to an inflation-ravaged economy. Disruption to the UK economy goes far beyond the maritime sector, with rail and London subway workers staging pay protests last week and postal staff at the Royal Mail Plc due to begin a series of walkouts on Friday.

On the corporate front, Cineworld today confirmed that it is pondering a bankruptcy filing in the US while it fights for survival. Cineworld, which owns the Picturehouse chain in the UK, has 750 sites in the UK, employing more than 28,000 people across ten countries. The shares opened at 4p today, an equity valuation of around GBP60 million. The stock traded at 320p in the lead up to the Covid-19 outbreak.

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FTSE 100 Daily Chart – August 22, 2022

Source:TradingView

The FTSE closed Friday as a doji candlestick on the daily chart signaling indecision may be ahead, which is in line with current market conditions. The index bucked the trend this past week posting modest gains as most other indices suffered losses to end the week in the red.

We currently trade above the 20, 50 and 100-SMA with higher prices looking likely from a technical perspective. The fundamentals for the UK economy however suggest that any further upside move would require a catalyst, either in the form of a sentiment change or an improving economic outlook for the UK. We have trendline resistance at around 7600 with 2022 highs just above at around 7694 which could also serve to limit any upside move.

Trading Ranges with Fibonacci Retracements

Key intraday levels that are worth watching:

Support Areas

  • 7500
  • 7381
  • 7300

Resistance Areas

  • 7600
  • 7697
  • 7790
FTSE 100 Mixed
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Change in Longs Shorts OI
Daily -5% 24% 3%
Weekly 10% -11% 3%
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Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

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

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