European stocks appears ready for a breakout bases on bond yields despite recent economic weakness, says Fawad Razaqzada.
In recent days, we have been talking up the prospects of a stronger recovery in European stocks, owing in part to the falling government bond yields as a result of major central banks like the European Central Bank (ECB) turning dovish recently. The German DAX index, for example, is looking a lot healthier now given its breakout above that 11700 resistance level as we had highlighted the possibility previously.
Other EU indices are also starting to look positive, even the UK’s FTSE 100, which has underperformed year-to-date because of Brexit. On that front, the latest news is that EU leaders are apparently planning on a contingent offer on Brexit extension in light of the Speaker of the House of Commons, John Bercow, yesterday blocking Prime Minister Theresa May's plan to put her Brexit deal to another vote.
However, with metal and crude prices rising, and sentiment towards risk remaining generally positive, the commodity-heavy index is not doing too badly. Among other bullish technical considerations, the FTSE has:
- Been making higher highs and higher lows since bottoming out in January
- Risen above 21, 50 and 200 daily moving averages
- Broke several resistance levels, including 7150 and most recently 7260
- Continued to set new yearly highs
So, as things stand, the path of least resistance is to the upside and we expect supports to be respected and resistances to break in the near-term outlook. The next major area of resistance is around 7450, where the FTSE might be heading towards in the coming days (see chart).
Source: eSignal and FOREX.com
