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DAX & CAC Getting Best of Both Worlds; Weak Euro, Strong Risk Trends

DAX & CAC Getting Best of Both Worlds; Weak Euro, Strong Risk Trends

Paul Robinson, Strategist

What’s inside:

  • Weak and possibly considerably weaker euro a boon for European indices
  • Major global stock markets in full-on bull market mode
  • DAX & CAC technical levels and outlook moving forward

Find out what’s driving European Equities and the Euro in our Q4 Forecast.

Last week, Draghi and Co. knocked the euro back on its heels while bolstering European stocks – the DAX ripped to fresh record highs and the CAC beyond the post-election May high. European stocks are reaping the benefits from a backdrop consisting of both a weak currency and strong global investor appetite. The S&P 500 is a ‘bear-killer’ and the Nikkei has become an absolute beast after spending most of the year lulling everyone to sleep. The Japanese index is only another strong day or two away from the 1996 high and from reaching levels not seen since early 1992. Nothing appears to be standing in the way of stocks between now and the end of the year, barring a geopolitical shocker.

The sell-off on Thursday pushed EURUSD below the ‘neckline’ of a ‘head-and-shoulders’ pattern in development since early August. The size of the pattern points to a potential target of 11240. That’s a good distance from here, and given the one-month correlation between the DAX & CAC versus EURUSD is -70% and -84%, respectively, there could be a strong tailwind yet to come for equities.

The DAX only has an intermediate-term top-side trend-line to contend with, but not viewed as significant resistance. Support clocks in at the trend-line off the 8/29 low and the pair of long-term top-side trend-lines (~13100/50) which kept the market consolidating for much of last month until the ECB meeting.

DAX: Daily

DAX & CAC Getting Best of Both Worlds; Weak Euro, Strong Risk Trends

Check out this guide for tips on how to Build Confidence in Trading

The CAC pushed above the post-election May high following the ECB and continues to make good on the bull-flag breakout back in early September. There is a top-side trend-line right in the current vicinity running from the 2015 peak over the May high, but not viewed as a significant hurdle. Support on a pullback comes in at the May high of 5442 and trend-ling off the 8/29 low.

CAC: Daily

DAX & CAC Getting Best of Both Worlds; Weak Euro, Strong Risk Trends

---Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at @PaulRobinonFX.

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