DAX, FTSE Open Marginally Higher, Technical Roadblocks and ECB Conference Provide Downside Risks

• DAX 40:Recorded its Best Day in a Month, Flirting with 13000 Key Level.
• FTSE 100:Edges Higher as Caution Persists Around PM Truss’s Support Package

DAX 40: Recorded its Best Day in a Month, Flirting with 13000 Key Level

The DAX traded higher in early trade in an effort to continue yesterday’s bullish move which was seen across equity markets before declining to trade in the red. The bullish move seen yesterday was not facilitated by data, but rather by markets assessing remarks made by a host of Fed Speakers. The Fed’s Beige Book served to reinforce the idea of aggressive tightening by the Federal Reserve with the report noting that the outlook moving forward faces challenges from a weak economic outlook and persistent inflation.

The European Central Bank (ECB) will be in the spotlight today, with the central bank widely expected to raise interest rates. The case remains strong for the ECB to deliver a hawkish 75bp hike with a 50bp hike viewed as potentially damaging to the Euro. A tough balancing act as the Fed decision is due later in the month, while slowing economic activity in the Eurozone and the ongoing energy crisis, point to a recession later in the year. An outsized 75bp hike could lead to a stronger Euro and potentially a drop in the index while a 50bp hike could spur the index to rally higher.

On the energy front, the EU is set to intervene in energy markets to assist companies squeezed by the liquidity crunch. It will also propose a clawback on excess profits by power and oil companies as it seeks to protect citizens from soaring costs. EU officials are set to meet in Brussels on Friday to consider the next steps, ahead of a winter that may herald the beginning of a prolonged crisis.

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DAX 40 Daily Chart – September 8, 2022

Source: TradingView

From a technical perspective, we had a shooting star candle close last week which failed to close above the gap of the prior week. Shooting star would usually indicate further downside but that is an area of resistance. Given the significant downside move we have had what some would call a relief rally with a pullback to the MA’s now in sight.

On the daily timeframe we had a bullish engulfing candle close yesterday, failing to recapture the key 13000 level. We have continued the move in European trade today before finding resistance just above the 23.6% fib level. Should this resistance level turned support hold it could push the price above the key level. If the index can maintain gains and close above the key level, and should the market be buoyed by the ECB announcement we could see further upside. On the flip side,we trade below the 20,50 and 100-SMA while the gradients indicate a strong downward trend a retracement to retest the MA’s may be on the cards first.

Key intraday levels that are worth watching:

Support Areas

• 12800
• 12587

Resistance Areas

• 13000
• 13105
• 13260

Psychological Levels and Round Numbers in Trading

FTSE 100: Edges Higher as Caution Persists Around PM Truss’s Support Package

The blue-chip index struggled to follow its peers higher on Wednesday, as US shares recorded their best session since mid-August. The index did enjoy a bounce from its lows yesterday but remained down for the day weighed down by falling crude prices. Following on from that the index is expected to open higher this morning as markets await the new Prime Minister Liz Truss’s potential plan to contain spiraling UK energy bills.

PM Truss is expected to set out her plan to tackle soaring energy bills on Thursday, using her first significant act as UK prime minister to try to head off the intense pressure she faces to ease a historic cost-of-living crisis.Truss said in an emailed statement, “We will take action immediately to help people and businesses with bills, but also take decisive action to tackle the root cause of these problems, so that we are not in this position again.”

In corporate news shares in Associated British Foods have fallen 8% after the FTSE 100-listed conglomerate highlighted the impact of a strong dollar on costs in its Primark retail division. Other retail stocks under pressure after the Primark update included Marks & Spencer, which dropped 3%, and Next after a decline of 210p to 5838p.

FTSE 100 Daily Chart – September 8, 2022

Source:TradingView

The FTSE is higher for the week following its 300-odd point selloff last week. We had a bearish engulfing close on the weekly but have yet to see follow through. The index remains bound by key resistance and support areas at 7600 and 7000 respectively. We trade below the 20,50 and 100-SMA at the moment but price action indicates we could be in for a retest of the MA’s before continuing any move lower.

Trading Ranges with Fibonacci Retracements

Key intraday levels that are worth watching:

Support Areas

• 7228
• 7135
• 7000

Resistance Areas

• 7333
• 7379
• 7446

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda