European Equities Rally as Bulls Gain The Upper Hand
By David Becker
European Shares moved higher despite hawkish comments from the ECB, as fears of higher oil prices declined. The media is reporting rumors that the Libyan government has accepted Venezuela’s offer to mediate a peace agreement between rebels and Gadhafi. The rumor has generated profit taking in the oil markets which has allow the DAX, FTSE and CAC to rally.
Stocks rallied as economic data in the Euro-zone came in stable, allaying some fears that growth was stagnating. GDP in the EMU came in at 2% year over year in-line with analysts’ expectations. Additionally, retail sales in the Euro-zone showed at .4% increase month over month for January, and an increase of .7% year over year, slightly better than expected.
Investors moved back into riskier assets, but could have been alarmed by the hawkish comments today from the ECB. European Central Bank President Jean-Claude Trichet signaled that an increase in interest rates next month “is possible,” but said the ECB will continue to lend as much as euro-zone banks want for at least another three months. Increasing inflation are the risks that Trichet sees within the EMU and “strong vigilance” is required to stem the rise in commodity prices and a spill over into core inflation.
The potential for an increase in the overnight lending rate is good for the European currency, but in general, higher rates are negative for stocks. Higher yields erode future cash flows associated with equity purchases, and make fixed income products a potentially more attractive investment.
Technically, the DAX and the FTSE continue to be very constructive as bull trends are in place and momentum continues to perpetuate. The 20-day moving average is nearly 100 points above the 50-dya moving average of the DAX, reflecting a markets that is in an uptrend. Support is seen at the 50-day moving average near 7140. Resistance is seen close to 7425. The FTSE moved up more than 1.5%, breaking through the 50-day moving average at 5988. Support is seen at the 50-day moving average and then lower at 5860. Resistance is on the FTSE is seen at the 20-day moving average at 6015, and then higher at 6100.
Copyright 2011 eToro BlogNote: Past performance is not an indication of future results. This post is not investment advice. CFD trading bears risk to your capital.