As expected in our previous report, the market showed strong upside potential with a resistance around 200 DMA. It staged a decent recovery of +0.7% (weekly basis) to close the previous week at 5317 wherein it has given a strong signal for the continued upward momentum by closing comfortably above the 200 DMA and the horizontal resistance of 5230.
This coming week seems to be light on global fundamental data and events with a few important events like testimony of ECB president Mario Draghi, US FED Chairman Powell, French Consumer spending and prelim CPI data. Though, except the risk of unexpected shocks during these testimonies, markets should further be influenced by technical factors this week which will help to give a medium term direction for coming weeks.
Technical Analysis as on 26th February, 2018
Technical Analysis: After having comfortably crossed above its horizontal resistance of 5230 and giving 2 continuous positive close above 200 DMA, the Index CAC 40 seems to be showing strong upward potential. This implies that its better to take the signals and follow the market, which has given positive close in 4 out of 5 trading sessions in the previous week. Therefore with positive outlook we suggest the following trades on the basis of the technicals:
- BUY around 5300 (or 200 DMA) with a target of 100 DMA (currently 5380) and a stop-loss below 5240. The 200 DMA should act as a big resistance while the levels of 5240 are a strong support levels as per the trading range of the Index in the previous week.
- BUY above 5380 (100 DMA) with a target of 5480 and a stop-loss below 200 DMA. Should the Index comfortably touch 100 DMA this week, the chances of it further continuing with its upward momentum remains high but it can end up facing a bit of resistance while trying to break above 100 DMA. Therefore, before executing this strategy its safe to wait for the market to comfortably close above the resistance level of 100 DMA.
- SELL below 5300 (200 DMA) with a target of 5180 and stop-loss above 100 DMA. Though with the continued strong upward momentum, this trade could be rather risky if not managed properly and should most probably be avoided.
Fundamental Events & Data: As compared to the heavy load of events and data in the previous week, this week remains rather light except the risks of unexpected news coming in from the testimonies of the US FED Chairman & ECB President. Last week majority of the events and data were already priced in into the market which did not create unexpected shocks while this week one needs to be careful with his open position during these two major events. We also have a few French economic data set to be released later this week which are better than the previous figures but they too will be already priced into the Index CAC 40. Therefore, the timeline of important events and data this week is:
| Date | 8:54am | Currency | Detail | Forecast | Previous |
| MonFeb 26 | 4:00pm | EUR | ECB President Draghi Speaks | ||
| TueFeb 27 | 3:30 PM | USD | Fed Chair Powell Testifies | ||
| WedFeb 28 | 9:45am | EUR | French Consumer Spending m/m | 0.50% | -1.20% |
| EUR | French Prelim CPI m/m | 0.30% | -0.10% | ||
| EUR | French Prelim GDP q/q | 0.60% | 0.60% | ||
| 5:30pm | USD | Crude Oil Inventories | -1.6M | ||
| ThuMar 1 | 10:50am | EUR | French Final Manufacturing PMI | 56.1 | 56.1 |
| USD | Unemployment Claims | 226K | 222K |
Finally: This week remains light on fundamental events while still carrying some risk of unexpected volatility during the testimonies since any hint from US FED about the change in expected number and pace of rate hikes might create some disruption in the global markets while at the same time, any change of stance on expected timeline of rate increase by ECB President may create uncertain volatility in the European Markets. Otherwise, the global markets including CAC 40 is expected to continue with its recovery on the upside. Finally, higher weight should be given to technical factors this week. Our suggested trades for the week are:
BUY around 5300 (or 200 DMA) with a target of 100 DMA (currently 5380) and a stop-loss below 5240
BUY above 5380 (100 DMA) with a target of 5480 and a stop-loss below 200 DMA
SELL below 5300 (200 DMA) with a target of 5180 and stop-loss above 100 DMA – (Although this is a risky strategy given the momentum in the previous week)
By: Sannidhya Agrawal (Consultant GEMIC)
Email: sannidhya.agrawal@grenoble-em.com