EU50 remains in a rise as ECB kept policy unchanged
By: Eddy Peng Mar 10, 2017
European stocks closed moderate changed, erasing an earlier slip after Mario Draghi said economic downside risks in Eurozone were less pronounced. The EURO STOXX 50 Index added as much as 0.9 percent at the close of record highs yesterday since the end of 2015. Banks rallied, leading gains among industry areas, after the acknowledge from European Central Bank President Draghi, saying that the cyclical recovery may be still in gaining momentum and the “sense of urgency” prompted by deflation risks has been defused.
The European Central Bank left its quantitative-easing program unchanged on Thursday, keeping unprecedented stimulus in place and maintaining its dovish guidance even though inflation and growth have seen a rebound more quickly than expected. “QE is here to stay in the Eurozone, until at least the end of this year. However, more policy action is less likely because deflation risks have receded,” Kathleen Brooks, research director at City Index, wrote in a note.
Facing low inflation and weak growth, the ECB maintained its interest rates in negative territory to fuel further market growth with aiding the euro zone’s recovery. At Thursday’s meeting, the ECB remained its rate on bank overnight deposits unchanged, at -0.40 percent. The main refinancing rate, which determines the cost of credit in the economy, was also unchanged at 0.00 percent, while the rate on the marginal lending facility remains at 0.25 percent.
ECB president Mario Draghi said the Bank had removed one phrase from his standard introductory statement that pledged it would act “using all the instruments available within its mandate” if needed to achieve its objectives, highlighting that bright outlook still remains.
Although recent data on inflation surprisingly showed the upside, this inflation surge seems to be temporary, largely driven by the climb of energy costs. In addition, among the political risks on the horizon, the French election is likely to be of particular concern. With far-right candidate Marine Le Pen wanting to take France out of the euro zone, markets are already bracing for a shock.
Technically, the EURO STOXX 50 Index reached the highest point over the past year. As depicted below, current weekly resistance remains located at the December 3rd 2015 peak at 3536.8. Alternatively, the index remains support above the February 8th 2017 low at 3217.5.
Over the long-term period, if prices continue to climb in the next few weeks, approaching to the resistance range of 3536.8, traders may look for the index to test resistance and more likely to fall afterwards. While in the short term with considering 30-minute chart, it is currently facing high resistance. If prices continue to gain, traders may look for a breakout and further increase. Alternatively, if it turns back to drop, it may return to support and potentially breakout lower.
Chart 1: EU50 Weekly
Chart 2: EU50 30-Minute
Additionally, when we look at the indicator of daily MACD, it has seen an upward trend recently. If MACD declines later, it can be seen as a signal of bearish and traders may begin to look for short selling for avoiding potential market slump.
Chart 3: EU50 MACD Daily
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