Europe Heading Towards a Recession


DAX, Euro Stoxx 50, FTSE MIB Price Analysis & News

  • Coronavirus Spread Continues to Sour Risk Appetite
  • DAX 30 | At Risk of Larger Drawdown
  • Euro Stoxx 50 | Eyes on the 2000 Level

Yesterday’s bounce in equity markets had once again been faded with weakness overnight in Asia spilling over into European equities this morning despite the plethora of fiscal measures announced across the globe. Another worry for risk appetite is the surge in the US Dollar amid signs of distress within the funding market, much like the 2008 global financial crisis. Elsewhere, oil prices have continued to head south as more and more countries go into lockdown. For looking at the treasury market, the 2s10s curve has seen a sizeable steepening, which has typically preceded a recession as we have noted previously.

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DAX 30 | At Risk of Larger Drawdown

The DAX has continued to fall sharply having broken below the 2019 (10173) and 2016 (8696) low. There is little in the way of notable support until the 2014 low, situated at 8350. While this may give the DAX a pause for breath, recoveries in the index are likely to be shallow as the spread of coronavirus shows little signs of easing up. As such, failure for 8350 to hold leaves the index vulnerable to a larger drawdown towards the 61.8% Fibonacci retracement.

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DAX 30 Price Chart: Weekly Time Frame

DAX 30, Euro Stoxx 50 Outlook: Europe Heading Towards a Recession

Source: IG Charts

Euro Stoxx 50 | Eyes on the 2000 Level

The Euro Stoxx 50 has pierced through the rising trendline stemming from the 2008 lows, which in turn leaves the index vulnerable to a drop towards initial support at 2130. Failure to hold however, opens the door to a major low of the 2000 level, which coincides with the 2012 low. A bounce back in the index could be faded at prior support, now resistance at 2500 (rising uptrend).

Euro Stoxx 50 Price Chart: Weekly Time Frame

DAX 30, Euro Stoxx 50 Outlook: Europe Heading Towards a Recession

Source: IG Charts

— Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

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