It has been an interesting day in the markets as stocks and the dollar rallied, European benchmark government bond yields hit fresh record lows and the euro dropped to 1.1200. The single currency’s drop follows its failure to move noticeably higher after Greece’s bailout programme was extended. It was thus only a matter of time before the sellers would return to take advantage of the interest rate differential between the Eurozone and the US. The core inflation data from the US today has reinforced expectations that the Fed will mostly likely hike rates in mid-2015. But as Yellen made it clear earlier in the week, the future rate hikes will only be gradual and minimum in size. This should help to keep the US stock markets elevated. But as we have been banging on about the European markets for some time now, this is where we are likely to see most of the action. The ECB’s recent introduction of QE is the primary reason for our bullish view on the European markets. If the US is anything to go by then the European stock markets have a lot of catching up to do as the ECB’s actions push bond yields further lower and, in some cases, into the negative territory. Yield-seeking investors are being left with little choice but to invest into the stock markets as the returns on other investments are simply too low or come with undesirably high risks. But we have also seen the release of some decent economic data from the single currency block in recent times. Today, for example, the Spanish fourth quarter GDP growth was confirmed at 0.7%, while in Germany the number of people unemployed fell by a good 20 thousand last month. On top of this, the GfK German Consumer Climate index edged higher to 9.7 in February from 9.3 previously. If this trend of improving data continues then we could see further gains in the European stock markets.
As we have already published some bullish reports on the FTSE, CAC, DAX and Euro Stoxx recently, today we are looking at the IBEX index. Below we have two charts of the Spanish benchmark index, both displaying clear bullish patterns. The monthly chart shows that the IBEX has been in an upward trend since bottoming out in 2012. In recent months, the index has consolidated in a relatively tight range below the 11200 handle, suggesting that it may be gearing up for a potential breakout towards the long-term 61.8% Fibonacci retracement level of the downswing from the 2007 crash, around 12160. On the daily chart, one can see that it has recently broken above its main moving averages and also a bearish trend line. The breakout was confirmed once the prior high around 10745 was cleared (area circled on the chart). It has since been moving higher and is now not too far off that 11200 handle. A decisive break through this level could target 11750/60. This is where the 127.2 and 161.8 per cent Fibonacci extension levels of the last two downswings converge. From there, it may pullback a little bit on profit-taking before potentially pushing higher again towards that long-term 61.8% Fibonacci level (see the monthly chart). Meanwhile a potentially bearish scenario would be if the index fails to crack this 11200 yet again. But the bulls will only be concerned if the index also goes on to break support at 10930. If it does, then it may push back towards 10745 before deciding on its next move.