Path of Least Resistance Ahead of Fed Meeting

Key Talking Points:

  • The lack of technical or fundamental drivers sees stocks take the path of least resistance
  • DAX 30 and IBEX 35 drift higher

European and US markets are once again nearing their all-time highs as investors gear up for tomorrow’s Federal Reserve meeting. Expectations are for no change in policy which would remain supportive for equity markets, although we may see a more hawkish message as the US economy starts to show signs of recovery.

Given the gains over the last few months, there does seem to be a lack of technical and fundamental drivers taking equities higher, leading to a situation where markets are taking the path of least resistance, which seems to be marginally higher at the moment.

Data out this morning showed German consumer prices rise 2.5% in the last year, which is 0.5% above the Eurozone average. The German economy is showing signs of recovery on the back of easing lockdown restrictions but industrial production and retail sales are still lagging behind, keeping expectations that the ECB will continue its flexible financing conditions despite rising prices.

DAX 30 Levels

Yesterday’s price action saw the DAX 30 cross the 15,800 mark for the first time as bullish momentum continues to consolidate. Further upside seems slightly limited at this point so we may see the German index drift sideways a little longer as marginal gains are stacked on each other. The last month has seen higher lows which have created a short-term ascending trendline, offering immediate support at 15,626, followed by the horizontal 15,500 area. On the topside, I would expect 15,800 to offer some resistance over the coming days but a break above this level is likely to lead to further gains.

DAX 30 Daily chart

DAX 30, IBEX 35 Outlook: Path of Least Resistance Ahead of Fed Meeting

IBEX 35 Levels

The Spanish stock index continues to struggle in its attempt to break higher. The current price is back around the levels seen at the end of May despite a consolidated push higher over the last few sessions. There really does seem to be a “two steps forward, one step back” approach to the IBEX, where a strong bullish push is then halved before any further momentum is achieved.

Yesterday’s break higher has been rejected at 9,328 before being fully reversed this morning, suggesting that bulls are not yet committed to supporting the index going higher. If they are able to break above the ascending trendline from the November 2020 lows (9,440) then we may see bullish momentum consolidate with more strength as has been the case over the last few months.

IBEX 35 Daily Chart

DAX 30, IBEX 35 Outlook: Path of Least Resistance Ahead of Fed Meeting

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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