Equities continued to consolidate on Tuesday in Europe
Equities continued to consolidate on Tuesday in Europe, following a mixed trading session in Asia, as risk appetite lost momentum.
Most benchmarks traded sideways from Frankfurt to Madrid this morning, with gains in the industrial and basic material sectors offset by losses in financial and energy shares.
Not only have markets become less directional since the beginning of the week, but volatility has also decreased, highlighting the current slowdown in risk appetite.
The big question in investors’ minds is: are equity markets set for a correction following a three-week rally, or is the current consolidation just a breath before reaching new highs?
Technically speaking, the scenario of a coming correction prevails, as the price action currently diverges with the RSI indicator, which also already shows a break-out of the bullish dynamic trendline.
However, the macro front tells another story. With today’s release of the minutes of the last FOMC meeting and a speech from ECB President Christine Lagarde, investors may also prefer to sit back and wait for further developments on the monetary front before adjusting their exposure to equity markets.
The dovish narrative has now been largely priced in, and some investors are starting to think that one cooler-than-expected inflation print cannot be sufficient to reverse market sentiment completely: it will need to be confirmed by central bank officials.
The STOXX-50 index keeps trading sideways between 4,350.0pts and 4,330.0pts, with 4,385.0pts as the next major resistance, while 4,300.0pts can be seen as a key support for the market.
Pierre Veyret – Technical analyst, ActivTrades
Most benchmarks traded sideways from Frankfurt to Madrid this morning, with gains in the industrial and basic material sectors offset by losses in financial and energy shares.
Not only have markets become less directional since the beginning of the week, but volatility has also decreased, highlighting the current slowdown in risk appetite.
The big question in investors’ minds is: are equity markets set for a correction following a three-week rally, or is the current consolidation just a breath before reaching new highs?
Technically speaking, the scenario of a coming correction prevails, as the price action currently diverges with the RSI indicator, which also already shows a break-out of the bullish dynamic trendline.
However, the macro front tells another story. With today’s release of the minutes of the last FOMC meeting and a speech from ECB President Christine Lagarde, investors may also prefer to sit back and wait for further developments on the monetary front before adjusting their exposure to equity markets.
The dovish narrative has now been largely priced in, and some investors are starting to think that one cooler-than-expected inflation print cannot be sufficient to reverse market sentiment completely: it will need to be confirmed by central bank officials.
The STOXX-50 index keeps trading sideways between 4,350.0pts and 4,330.0pts, with 4,385.0pts as the next major resistance, while 4,300.0pts can be seen as a key support for the market.
Pierre Veyret – Technical analyst, ActivTrades
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