IFC Markets - Analytics

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    Technical Analysis &Indices_EU : 2015-11-18

    ECB policy may boost stock market

    European stocks indices are on the rise. On Tuesday they almost rebounded from their fall on the terrorist attacks in Paris. Investors expect the QE programme of ECB will give further stimulus to the EU economy supplying the stock market with liquidity. Will the European stocks continue to edge up?

    Since this march the ECB effects its 60-billion-euros a month QE programme by buying asset-backed securities (ABS). It is scheduled to come to an end in September 2016. Nevertheless, not that far ago, the ECB President Mario Draghi said the programme could be expanded and extended. The matter will be discussed at the next ECB meeting on December 3. On Tuesday the Chief ECB economist Peter Praet said the Bank was concerned about the too low inflation. Markets considered the comment as support for the possible further monetary easing. During the December meeting the ECB will give its new outlook for the key macroeconomic indicators. According to the September forecast, the EU GDP will add 1.7% in 2016 and 1.8% in 2017. Inflation is expected to reach 1.1% in 2016 and 1.7% in 2017. The current inflation data is far below the target level – in October the prices increased only 0.1% year over year. The ECB programme drives euro lower from which the European exporters benefit.



    On the daily chart the PCI instrument Indices_EU: D1 is consolidating within the uptrend. It it below its 200-day moving average. The Parabolic and MACD indicators give sell signals. Nevertheless, we believe they may reverse in case of the possible PCI growth. Let’s consider buying at the break of the latest high. The RSI indicator is neutral and above 50, no divergence. The Bollinger bands have widened which may mean higher volatility. The bullish momentum may develop in case Indices_EU surpasses the two last fractal highs, Parabolic signal and 200-day moving average at 9021. This level may serve the point of entry. The initial risk-limit may be placed below the boundary of the previous sideways trend at 8554. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 8554 without reaching the order at 9021, we recommend cancelling the position: the market sustains internal changes which were not taken into account.


    Position Buy
    Buy stop above 9021
    Stop loss below 8554

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