Recent Rally at Risk as COVID Cases Rise Again

Euro Stoxx 50, IBEX 35, Delta COVID-19 Variant Talking Points:

• Euro Stoxx 50 maintains key technical levels despite decline in other European benchmarks
• IBEX 35 falls below key 9,000 level as Spain rolls out new travel restrictions for the UK
• Fears continue to grow over the delta variant of COVID-19 as countries begin to take protections

European equity benchmarks have taken a breather in the latter half of June as concerns mount over the spread of the Delta variant of COVID-19. Despite robust vaccine rollouts across the continent, European leaders remain wary of the growing threat. Just this week, Portugal and Malta announced restrictions on unvaccinated UK travelers, following reports that the Delta variant is sweeping across the United Kingdom.

The Spanish IBEX 35 has retreated below 9,000 in recent sessions after reaching a fresh post-pandemic high of 9,310 on June 15. The index ended Tuesday up just 0.02% after a rough Monday, which saw the IBEX 35 decline by nearly 2%. Having retreated from the yearly highs in quick fashion, investors in the Spanish index will look for a short-term test of the 9,000 psychological level in order to gauge sentiment and momentum. Having already fallen below the ascending February trendline and the 50-day Simple Moving Average (SMA), the index may look to the 0.786% Fibonacci level at 8,672 for support should virus-related headwinds continue to prevail.

IBEX 35 Daily Chart

Chart created with TradingView

Unlike the IBEX 35, the Euro Stoxx 50 has remained above key technical thresholds, indicating a more favorable outlook. The European index has brushed off inflation concerns and virus fears and sits just 1.4% off of record highs. The large-cap index has performed well, with many constituents benefitting from the economic reopening of Europe and reflationary sentiment. Having treaded water in recent weeks, support for the Euro Stoxx 50 index can be found just below in the form of the 50-day SMA and the ascending trendline stemming from the March 2020 pandemic low. Should ECB dovishness continue and virus-related headwinds dissipate, a retest of all-time highs above 4,100.

Euro Stoxx 50 Daily Chart

Chart created with TradingView

Challenges may continue to linger for European equities in the near-term. As countries forge different paths when it comes to vaccination, major benchmarks may continue to reflect the shifting landscape. Growing concerns around the Delta variant have already produced fresh travel restrictions around the continent, and more may come in the near term as the virus sweeps through Europe. Efforts to reopen major cities and tourist hubs may be squandered by additional lockdowns and restrictions. European indices may continue to gyrate, despite increasing vaccination rates and an extremely dovish ECB.

— Written by Brendan Fagan, Intern for DailyFX

To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter