Euro Stoxx 50 Showing Signs of Fatigue as EU Data Worsens

Bearish Eustoxx 50 Contingent Upon a Close Below Prior High, 4,415

• Could the ECB soon be stuck between a rock and a hard place?
• Sharp decline after printing new all-time-high places bullish move in jeopardy
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Could the ECB Soon be Stuck Between a Rock and a Hard Place?

A really disappointing manufacturing PMI print for Germany and the EU as a whole continues the trend of deteriorating fundamental data in Europe. One indication of the trend can be seen via the economic surprise index which tracks surprises to the upside with an upward slope and visa vera for disappointing data. As can be seen below, the data has been consistently lower for most of this year.

Economic Surprise Index: Euro Area Showing Consistent Decline for 2023

Source: TradingView, prepared by Richard Snow

With the single market narrowly avoiding a technical recession in Q1, the outlook for the eurozone remains uncertain. Q2 GDP surprised with a 0.3% lift but incoming data remains weak. The recent uptick in core inflation throws up a scenario the ECB want to avoid at all costs: high/stubborn inflation and stagnant growth. In the event of higher inflation, the governing council will have to raise rates or maintain them at elevated levels, risking a recession in Europe. Goods inflation in the eurozone has come down nicely but services inflation remains the one to watch.

EU GDP (Growth) Surprises in Q2 but Outlook for the Rest of the Year Remains

Source: TradingView, prepared by Richard Snow

Sharp Decline after New All-Time-High Places Bullish Move in Jeopardy

The recent bullish advance to reach a new all-time-high is nor in jeopardy with today’s sizeable selloff. After reaching 4,493 yesterday, prices had pulled back on the day to reveal the early signs of a rejection of higher prices. In European trade today prices have dropped below the prior all-time-high of around 4,415 and a close below this level could be telling if we are to see further weakness.

In addition, price action reveals an evening star-like pattern, which may lead to a sustained bearish move on a close below the prior high. Levels of support thereafter appear at 4,327 and 4,260. The invalidation level for this setup resides at the new all-time-high of 4,493

Euro Stoxx 50 Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX