Get started

Europe

EURUSD Pair Projections for Q1, Q2, and Q3 2024Financial Analysis: EURUSD Pair Projections for Q1, Q2, and Q3 2024 Disclaimer : This analysis is based on the information available as of the provided date and is subject to change. It should not be considered as financial advice. Readers are encouraged to conduct their own research before making investment decisions. Ifo Report and Current Business Climate The recent Ifo report reflects a clouded sentiment in the German business landscape, with companies expressing dissatisfaction with their current business situations and heightened skepticism regarding the first half of 2024. Notably: Manufacturing The Business Climate Index in manufacturing witnessed a noticeable decline, with companies perceiving their current business situation as significantly worse. Expectations in the manufacturing sector grew more pessimistic, particularly affecting energy-intensive industries. Service Sector The service sector experienced a slight improvement in the business climate, driven by increased satisfaction with current business situations. Service providers displayed reduced skepticism about the outlook for the next six months, although expectations in restaurants and catering saw a nosedive. Trade The trade sector suffered a setback, as companies assessed their current situations as notably worse. Holiday trade for retailers, in particular, disappointed. Construction The Business Climate Index in construction hit its lowest level since September 2005, with companies reporting a worsened current situation. Approximately half of the companies anticipate further deterioration in the months ahead. Projections for EURUSD in Q1, Q2, and Q3 The Ifo report's insights into the German business sentiment set the stage for assessing the FX:EURUSD pair's projections: Q1: Sluggish Momentum The current scenario suggests a sluggish start for EURUSD in Q1. The clouded business sentiment in Germany may contribute to a sideways market, marked by cautious trading. Q2: Anticipating Improvement As Q2 unfolds, there is an expectation of an improvement in the financial situation in Europe. Despite the challenging Q1, signs of stabilization and potential positive developments could influence a more favorable outlook for the EURUSD pair. Q3: Inverse Head & Shoulders Pattern An analysis of the larger fractal, specifically the Inverse Head & Shoulders pattern forming in the EURUSD pair, points towards robust bullish momentum. This projection aligns with a potential turnaround by the end of Q2 and the beginning of Q3, indicating a shift towards a more positive market sentiment. Conclusion In conclusion, the EURUSD pair is likely to face challenges in the early part of 2024, reflecting the clouded sentiment in the German business landscape. However, signs of improvement are anticipated in Q2, with the formation of an Inverse Head & Shoulders pattern suggesting a strong bullish momentum in the currency pair by the end of Q2 and the beginning of Q3. Traders and investors should closely monitor economic indicators, global events, and the evolving business climate for timely decision-making in the dynamic forex market.
Long
by wikitrades
EURUSD in on the way finding breakoutAs my analysis for EURUSD, The price stuck on the weekly support which highlighted based on the chart. The Weekly trend still in bullish position but still find out the direction either down or more higher for long term position. As the US want to keep their monetary policy, keep going fight the inflation, probably, USD will take an advantage to keep them strong. Whatever it is, i will looking for any breakout happen at the current price based on its support and resistance, accompany by the trendline waiting for break or not.
by Lowzeus
1
ITALY PREPARING FOR NEXT LEG TO THE BULL MARKETThe Italy 40 index, or the FTSE MIB, is considered the benchmark for the national Italian stock exchange, the Borsa Italiana. The index consists of the 40 most capitalized and liquid stocks that are listed on the Borsa Italiana. The IT40 now seems to have begun rising in what is expected to be the wave iii of 3 for the index. This particular wave is expected to take the index towards the 40K mark from the current 29k mark(a hefty 40% move). The index of the European country is one more global index to be added to list of several others on the move in a bull market that can go on for several more years to come(of course with regular corrections and pauses on the way). Note*- This chart is for educational purpose only
CAPITALCOM:IT40Long
by neeraj_2_sharma
5
SHORT EURUSDEURUSD is still in its downtrend channel on the weekly and monthly timeframes. On the weekly timeframe, a retest of the double top neckline was established at the resistance area and a reach of the upper channel of the downtrend and a triple top at smaller scale was formed and retested, which all possibly confirms its downtrend continuation with a break of area 1.04 to 1.03 and later to its previous low 0.95 and into the lower of the downtrend channel at 0.90. Previous ideas: Monthly timeframe Weekly timeframe
Short
by WaelHaz
2
Soft landing calls for tough choices2023 has been a tough year for stock pickers. The gap between equity factor styles has been vast over H1. Growth, riskier in nature, posted the best performance up 24% year-to-date (YTD) followed closely behind by quality up 20% YTD1. The excitement around artificial intelligence (AI) reached a fever pitch in H1 2023, supporting growth-oriented technology stocks. As we enter H2 2023, we remain constructive on select areas of global equity markets. The resilience of the US economy has defied all odds. The strength of the US consumer (accounting for 70% of GDP), alongside the fiscal impulse, has been the cornerstone of the US’ extraordinary resilience. While inflation has shown encouraging signs of decline in the US, strong economic momentum alongside a rebound in commodities raises the risk of a re-acceleration of inflation. In turn, rates could remain higher for longer, resulting in Federal Reserve (Fed) rate cuts being delayed until Q1 2024. In such an environment, an enhanced equity income approach could fit well. Even if the earnings outlook weakens in China, proactive policy support via rate cuts could support its stock multiples. In Europe, where we are likely to witness a mild recession, we believe adopting a more cautious and defensive approach is warranted. Earnings revision ratios remain the strongest in Japan while they are the weakest in emerging markets. US equities are the belle of the ball It was the narrowest market in history, with just 25% of stocks outperforming the S&P 500. Expectations of cooling inflation aiding the Fed to end its current tightening cycle supported the performance of higher-duration growth stocks. For investors calling for a soft landing, rates are likely to remain at current levels or higher for a longer duration of time. A tight US labour market, with unemployment at historic lows and rising wages, is likely to slow the downward pricing momentum in the service sector. As the market regime transitions, it should provide a ripe opportunity for market breadth2 to improve. Markets may begin to favour value and dividend-paying stocks. History has shown us that breadth tends to improve as the economy recovers from a downturn. Peak pessimism towards China China’s reopening rebound has faded. The transition to a less debt-fuelled, less property-reliant and more consumer-driven economy is an important adjustment. We expect government stimulus policies to be aimed at enhancing the efficiency of the private sector. Further iterations of policy rate cuts by the People’s Bank of China (PBOC) are likely to follow; however, outright quantitative easing won’t be on the cards, as it is likely to further weaken the yuan, which the PBOC would like to avoid. With a low correlation to US equities (at 20x P/E)3 coupled with a high valuation discount, pockets of China continue to provide good investment prospects. Pockets of opportunity in non-state-owned enterprises Non-state-owned enterprises, particularly within the Technology, Communication Services and Health Care sectors, faced the brunt of China’s regulatory crackdown. These regulatory interventions stifled growth in key sectors such as e-commerce, mobile payment, ride-hailing, and online education. It also resulted in the suspension of initial public offerings (IPOs) and delisting of Chinese internet companies. Growing political frictions in supply chains are incentivising China to regain independence in the semiconductor and hardware space. Chinese technology companies are trading at a significant discount compared to US peers, offering plenty of room to catch up. Prefer defensives over cyclicals as Europe runs out of steam Nearly six months back, investors marvelled at how the euro-area economy had emerged from the energy crisis. That momentum appears to be fading as China’s recovery slows down, consumer confidence declines, and the impact of tighter monetary policy gains a stronghold on the economy. Higher inflation over the past year is holding back demand from households, which is hurting growth. The monetary tightening over the past year not only triggered an increase in real rates, it also impacted borrowers’ credit metrics. Owing to this, eurozone banks have tightened their lending standards.4 Banks remain the primary source of corporate funding in Europe. The credit impulse—that is, the annual change in the growth of credit relative to GDP—in the euro area reached its lowest point since 2010. TINA is alive in Japan There is no alternative (TINA) to equities is still alive in Japan. This is evident from higher equity risk premiums of 2.97% for Japan compared to 0.41% in the US.5 While the rest of the world has been busy trying to quell the inflation fires, Japan has emerged from the COVID-19 lockdowns with a faster pace of growth and higher inflation. A combination of higher equity risk premiums, a weaker yen supportive of the Japanese export market, corporate reforms, and attractive valuations have been important catalysts for equities. Policy shift still remains loose The Bank of Japan (BOJ) took a significant step towards normalisation in July by announcing a further adjustment to its yield curve control (YCC) regime. The BOJ formally changing its course constitutes an acknowledgement that inflation is returning to the Japanese economy. Yet the BOJ lowered its (median) inflation forecast for fiscal year (FY) 2024 to +1.9% and left its FY 2025 projection unchanged at +1.6%, in effect justifying ongoing easing by the BOJ. With Japan’s nominal growth rising over the coming years, the revised policy by the BOJ still remains loose, supporting the case for Japanese equities. Historically, a weaker yen has benefitted the performance of Japanese exporters as it enhances their competitive advantage. Adopting a tilt towards dividend-paying Japanese equities is likely to reap the benefits of not only a weaker yen but also corporate governance reforms. Conclusion As we progress into year-end, the outlook remains more nuanced. In the US, we favour value and dividend stocks as equity market breadth improves. While China’s problems in the housing sector are likely to remain a drag on domestic demand, we do see pockets of opportunity in undervalued sectors – technology and healthcare. Given the strong manufacturing headwinds facing Europe, we expect weak growth in the eurozone for the remainder of 2023, potentially favouring a tilt towards defensive stocks. Sources 1 Bloomberg as of 11 October 2023. 2 Breadth is measured by comparing the equal weighted performance versus the market cap-weighted performance of the US stocks listed on the S&P 500 Index. 3 P/E = price to earnings ratio. 4 Euro area Bank Lending Survey (BLS), April 2023. 5 Bloomberg, WisdomTree, as of 29 September 2023. Equity risk premium is the difference between the earnings yield and the respective 10-Year Government Bond Yield. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
SP:SPX
by aneekaguptaWTE
Eur/Jpy Selling on the back of EUR weaknessQ1-2023. High energy costs and elevated inflation are increasingly weighing on Eurozone real household disposable incomes, even if overall inflation pressures are not as broad-based as in some other major economies. In addition, disruptions to energy imports from Russia (oil and natural gas, both planned and unplanned) have the potential to further elevate energy prices or weigh more directly on production. To be sure, the starting point for Eurozone finances is quite sound, with nominal income growth largely keeping pace with inflation and the household saving rate still high by historical standards. But, as those supportive household finances begin to wane over time, we believe consumer spending will increasingly come under pressure. In addition, manufacturing activity could be impacted more directly by energy disruptions, and ta;ls pf U.S. recession could also weigh on the Eurozone economy. This could also force buyers into safe havens such as JPY, hence why we chose EURJPY to short. Sell Now: 138.990 TP: 137.260 Sl: 140.053 (110pips)
Short
by Elite_Forex
Euro Shorts at 11 Months High: A Hedge Fund's Hilarious TakeIntroduction: Hold onto your hats because we've got some juicy news straight from the hedge fund world. Brace yourselves for a rollercoaster ride as we delve into the wild world of euro shorts, as reported by a certain hedge fund that knows how to tickle our funny bones. Get ready to chuckle and, of course, take some action! The Hedge Fund Report: Picture this: it's been a whopping 11 months since our dear hedge fund buddies decided to take on the mighty euro. And boy, have they been having a laugh! According to their recent report, the euro shorts have been quite the spectacle, providing us with a comedy show we never knew we needed. Call-to-Action: Join the Comedy Show and Short Euro! Now that we've had our fair share of laughter, it's time to take action, my fellow traders! The hedge fund report has given us a golden opportunity to join the comedy show and potentially make some handsome profits. So, here's our call-to-action: jump on the bandwagon and consider shorting the euro! But remember, trading is no laughing matter. Do your due diligence, analyze the market, and make informed decisions. Take advantage of this hilarious situation, but also stay vigilant and manage your risks wisely. After all, laughter is great, but profits are even better! Conclusion: In a world where trading can sometimes feel like a serious affair, it's refreshing to find humor in the markets. The euro shorts, as highlighted by our hedge fund friends, have given us a reason to smile and, more importantly, take action. So, traders, buckle up, embrace the comedy, and consider joining the euro shorting extravaganza. Happy trading, and may the laughter be with you! www.hedgeweek.com
TVC:EXYShort
by bryandowningqln
Euro Still Drops After ECB's Record-High Interest Hike I must admit that the current state of affairs in the currency market has left me feeling rather disheartened. It is with a heavy heart that I share with you the recent news regarding the euro's ongoing decline, even in the face of the European Central Bank's (ECB) decision to raise interest rates to unprecedented levels. In a surprising turn of events, the euro has failed to find its footing, despite the ECB's efforts to bolster its value. The announcement of the highest interest rates on record was anticipated to provide a much-needed boost to the struggling currency. However, it appears that the market sentiment has not aligned with our expectations, leaving us in a state of perplexity and disappointment. As traders, we often rely on historical data, economic indicators, and expert opinions to guide our investment decisions. However, the current situation reminds us that the market can be unpredictable and subject to various external factors. While the ECB's decision was intended to instill confidence in the euro, it seems that other prevailing circumstances are exerting a stronger influence on its downward trajectory. In light of these developments, I would like to suggest considering a short position on the euro. Although it is disheartening to witness the currency's decline, it is crucial for us to adapt to market conditions and seize opportunities that arise from such situations. By taking a short position, we can potentially benefit from the euro's continued depreciation and mitigate potential losses. I understand that this suggestion may not align with our initial expectations or desires, but as traders, we must remain adaptable and open to alternative strategies. As the saying goes, "the market is always right," and it is our responsibility to adjust our positions accordingly. Please feel free to comment below if you would like to discuss this further or explore other potential trading opportunities. I value your expertise and would appreciate your input on the matter. www.wsj.com
TVC:EXYShort
by bryandowningqln
Market Insights: Germany, Europe's only HopeRecent market movements in Germany and Shanghai have unveiled an intriguing confluence of factors worth exploring. In Germany, the monthly market trends reveal a mixed narrative. While the indices have shown a bearish trend over the last few months, there are hints of optimism. The Tenkan-Sen remains above the Kijun-Sen, and the price is positioned above the Tenkan-Sen, traditionally regarded as bullish signals. The Senkou Span A hovers above Senkou Span B, and crucial indicators are above the Kumo Cloud, bolstering a potential bullish outlook. However, this technical analysis should be considered alongside Germany's inflation data, which has shown signs of easing. While lower inflation often benefits equities, it may also reflect weakening demand and economic growth. This shift could influence central bank policies, bond yields, and currency dynamics, with varying implications for sectors. On the other side of the globe, Shanghai has been marked by its own set of dynamics. Recent reports suggest a bullish sentiment, underpinned by a reversal in China's 10-year yield from three-year lows and proactive central bank measures. While these developments paint an optimistic picture for Shanghai, it's crucial to remember that markets are complex and multifaceted. The interplay of technical indicators, economic fundamentals, and global conditions collectively shapes market trajectories. As investors, staying attuned to both Germany and Shanghai's evolving stories will be key to making informed decisions in the months ahead.
OANDA:DE30EUR
by TheAltcoinBuff
US stocks are back leadingWorld markets bottomed on Spetember 2022 and during the recovery, European stocks AMEX:FEZ outperformed US stocks TVC:DJI for 9 months Nos, for the last 3 months, US stocks are back in the leadership as the DJI/FEZ ratio broke its downtrend back in April; just weeks before the AMEX:FEZ broke its trendline That is why relative strength is so important, sometimes gives leading signals And for the last 3 months, energy AMEX:XLE has been the leading sector, with coal being the ledading industry, the thing is that stocks like NYSE:CEIX , NYSE:AMR and NYSE:NRP are already extended Let's wait for a base formation in these leading stocks
AMEX:FEZ
by dpuleo19
EURUSD - AnalysisObserve the current Forex analysis for EURUSD, focusing on the return towards the weekly resistance point at 1.0833. Let's closely monitor the price dynamics of EURUSD on both the daily and 15-minute charts. The price has experienced a rally, bringing it closer to the significant weekly resistance point at 1.0833. This level, ranging from 1.0833 to 1.0841, represents the weekly resistance and also corresponds to the high point reached on Friday. Our attention is drawn to the possibility of the price rallying momentarily but encountering a barrier at this intra-day resistance zone. Such an occurrence could potentially lead to a subsequent downward movement, with the aim of reaching the daily support level at 1.0778.
Short
by Blackerberg
Euro Prehistoric Mode- i am not an expert in Forex but what i see with Euro is very bad. The euro was launched on January 1, 1999, when it was worth $1.19, but then began a long slide, falling through the $1 mark in February 2000 and hitting a record low of 82.30 cents in October 2000. - Remember this is just a TA. i don't dyor on news and FA on Forex. - That said the main trend line show us that the situation could be more catastrophic. -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- - 3 Scenarios are possible : -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1. right now we could get a consolidation at ---- $1-$0.96 ---- like we had in 2013 then Euro could bounce back around ----- $1.14-$1.15 ---- 2. if we dip under this support we could back easily to 2012 price ---- $0.9 ---- 3. Worst Case would be to back on the main trendline ---- $0.85 ---- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Stay safe with Forex! Happy Tr4Ding !
by thecryer
8
Italy - 3rd Largest Economy in the EUItaly 40 Index - CAPITALCOM:IT40 Made up of 40 of the largest companies in the Italian equity market the Borsa Italiana , the IT40 gives us an idea of how the 3rd largest economy in Europe is performing. The Chart - 22 month cycles - 22 months increasing and then decreasing - Based on the pattern we are reaching the end of a 22 month period where price is typically up to 30% lower from current level. - A bearish engulfing monthly candle appears to be forming here. If we close this month with a bearish engulfing candle, history would suggest significant down side will follow. - We have not lost the 10 month moving average yet which typically offers confirmation of further decline. Past patterns are no guarantee of a continuation of future patterns however we can watch out for the continuation. Confirmation signals of significant downside which would be; - Bearish Engulfing Monthly Candle (end of Aug) - Losing the 10 month moving average - In the event of same decline time window once in motion would be Aug - Nov 2023 (based on pattern) Lets see what happens. PUKA
CAPITALCOM:IT40Short
by PukaCharts
GBPUSD - An Opportunity To Meet Magic 33I don't normally pay much attention to the forex markets, but a friend on Twitter went into a cable short last month, had some immediate success, and then more or less got stopped out when she went rippy rip to start July. After looking at it 6 times, I think that my friend's bias that the pound is bearish is legit, but that it's too soon to get short. The reason is, if you look at cable on the monthly, it ran out the COVID lows and has clearly been in a confirmed reversal for months. Now, I don't believe in supply and demand zones. If you ask me, certain high price areas are where "supply" is as evidenced by distribution and certain low price areas are where "demand" is as evidenced by accumulation. Hence, on cable, the 1.31 to 1.35 range is where the real "supply" zone is and it's the soonest place you're very likely to find genuine bearish reversals. And the Petrodollar has been in a very strangely not-bearish position all year, which I outlined here when the propaganda machine tried telling us that Wagner Group was about to decapitate Vladimir Putin. DXY - The US Petrdollar And The "Prigozhin Coup" In Russia On the above note, if you crack in the phrase "China-Taiwan War Rhetoric" into the Brave search engine (Google Duck Bing only propaganda), you can find an article that points out that international propaganda outlets have suddenly started pushing heavily narratives about a war between China and Taiwan being close to breaking out. What's really going on is that the Chinese Communist Party is about to fall, and since China is 5,000 years old, the largest country, and abundant in natural resources and skilled labour, everyone is circling the wagons, trying to figure out how to get control of China. But Xi Jinping may just dump the CCP overnight instead, seizing the initiative in the chess match. If that were to really happen, Xi would weaponize the 24-year-long persecution of Falun Gong by the Jiang Zemin faction, which much of the world's governments and corporations have been complicit in as they've courted the toads in Shanghai (Babylon) all these years. So the situation is very geothermal. Very tectonic. Very dangerous. Things can happen any day, and they may happen any day. When that day comes, bond yields up, DXY up, gold down, equities down. VIX 80. Limit down. Big gap limit down. If you want to get long on risk assets right now, you need to be hedged long volatility So, back to cable: If we zoom in on the weekly, we find ourselves quite the obvious spectacle: Inside the most obvious "supply" zone is a weekly gap, that just so happens to sit at the Masonic 1.33. If you want to have yourself a lol, then Google "Rishi Sunak 33" and click the images tab and look at what the state messagers ran for headline photos when he was appointed Prime Minister. So, cable made a new high and that should be bullish. How can we go short, right? This is actually sound logic, because if you go short over old highs you can get gapped and ran on and then liquidated, because the forex market makers are absolute lunatics and like to do this kind of thing. But here's a super notable divergence between Cable and the DXY: Since lines are just lines, just look at the blips that compose the farthest right portion. Notice that cable made a higher high but DXY actually made a higher low? This indicates that DXY is likely about to pump, or at least that Cable making a higher high is really a stop raid. Moreover, look at the maximum "FAFO" that's emerged last week, which started in June, between the "Risk Free Rate" 10Y yield (ZN1 10Y TBond futures, an inverse representation of the yield) and the DXY. Going back to 2022, this has never happened before: Something is up for sure. And so the call for this is simple. Although there's no reversal pattern emerging yet on the cable hourly: If we see one appear on Sunday, or especially Monday London or New York session, it's equitable to find a short to take out the mid June pivot. You've got a potential 300+ pips on a raid back towards the June lows to set up a run to 1.33, which will net a potential 900+ pips if you do it right. If you feel the idea is suspect, well, just take a look at ES SPX Futures, which just did really the same thing and will probably take the low this week: I think the markets are set to decline heavily this year, which means risk off, USD up, something that I outline here: SPX/ES - An Analysis Of The 'JPM Collar' But I also think that we're about a month too early. Well. Do give it your best.
Long
by LordWrymouth
2
Addendum to “The Turning Tides”Following our initial publication, we've received some astute feedback that warrants further and more in-depth discussion. A reader correctly noted that the DAX and Euro STOXX 50 differ in their treatment of dividends - a detail we initially glossed over for simplicity's sake. The DAX is a performance index, including dividends, while the Euro STOXX 50 is a price index, excluding dividends. Understandably, it's a distinction that does play a role in their historical performances. It's also worth noting that a more apple-to-apple comparison to the DAX Index future might be the Euro STOXX 50 Index Total Return future (TESX). However, we originally chose the more popular FESX future due to its better liquidity and much longer history (TESX was only launched in 2016). In addition, the availability of Micro future contracts also makes it more retail friendly. Our primary exploration focused on overarching macroeconomic factors and sectoral shifts, which are pivotal to understanding the relative performance between the indices. However, dividends' contribution to long-term performance is undeniably significant. Therefore, it is prudent to revisit our DAX-to-STOXX50 comparison, this time adjusting for dividends. For this purpose, we've chosen the SPDR® EURO STOXX 50® ETF (FEZ) as a proxy for a dividend-adjusted STOXX50. The ETF seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the STOXX50 Index, and it has been around since 2002. One thing to note about FEZ is that it’s USD-denominated; therefore, we need to consider EUR/USD exchange rate move over the years in order to get as close a proxy as possible. Here's an updated chart of the DAX vs. the dividend and exchange rate adjusted STOXX50 ETF. The revised perspective still affirms DAX's relative outperformance over the past decade, although less pronounced than the FDAX vs FESX futures comparison suggests. On a closer look at the ratio between the DAX and the dividend-adjusted FEZ, a clear and massive topping pattern emerges, and it has arguably broken the neckline support. In other words, it appears that the DAX is likely going to continue underperforming the STOXX50 on a dividend-adjusted basis. (Due to certain technical limitations on TradingView, the following chart is presented as dividend and exchange rate adjusted FEZ/FDAX but on an inverted scale. Effectively, this means we're still viewing the FDAX/FEZ relationship.) This finer detail serves as a reminder of the multifaceted complexity within financial markets and the multitude of factors influencing asset performance. It also underscores the invaluable contribution of reader feedback, enabling us to deliver deeper, more nuanced market analyses. We deeply appreciate your active engagement and eagerly anticipate further enriching discussions.
F
by inspirante
The Turning TidesGermany, Europe's economic powerhouse, has consistently delivered impressive performance since the Global Financial Crisis (GFC) and the European debt crisis. This strong performance is rooted in Germany's strong manufacturing sectors and robust export activities. The country's economic strength is exemplified by the DAX's considerable outperformance of other European indices since the early 2000s. DAX (Deutscher Aktienindex) is a blue-chip stock market index comprising the 40 largest German companies traded on the Frankfurt Stock Exchange. Top constituents include internationally renowned firms such as SAP, Siemens, Allianz, Airbus, and Bayer. On the other hand, the STOXX50 index represents a much broader scope, encompassing 50 of the most liquid blue-chip companies in the Eurozone, including ASML, LVMH, and others. Since the dawn of the new millennium, the DAX index has surged by more than 180%, whereas the STOXX50 is only now approaching pre-2008 GFC levels. The DAX's relative outperformance becomes evident when looking at the regression channel of the ratio between these two indices. However, the prevailing narrative may be on the cusp of a significant shift. On a closer examination of the factors underpinning Germany's superior performance, it emerges that sector weightings and macroeconomic conditions have played pivotal roles. Notably, the DAX has consistently underweighted financials as compared to the STOXX50 index. Post-2008, the Eurozone's interest rates have witnessed a consistent downtrend. This period of extraordinarily loose financial conditions and low bond yields, largely a by-product of Quantitative Easing (QE), has favored technology and growth stocks. The main drivers are the availability of cheap capital and a stronger emphasis on growth potential over current valuations. Conversely, the same conditions have exerted considerable pressure on financials, as their earnings capabilities have been seriously compromised. This is precisely why the European banking sector has lagged considerably behind its US counterparts and has yet to recover to pre-GFC levels. This whole dynamics began to falter last year as inflationary pressures mounted, especially in European countries grappling with additional challenges, such as the Russian-Ukraine war and an energy crisis. The European Central Bank, following in the footsteps of the Federal Reserve and other central banks, finally embarked on a journey to raise interest rates, leading to one of the fastest-paced interest rate increases in modern history. Furthermore, Germany's export sector is encountering headwinds as the global economy edges closer to a potential recession, triggered by the tightening measures undertaken by central banks. Demand for products such as automobiles is likely to dwindle, particularly from major trading partners like China and the US. On the other hand, a healthier, more normalized yield curve is finally offering some respite to European financial institutions. This shift could eventually curtail DAX's persistent outperformance compared to other European indices like STOXX50. From a technical perspective, the price action also implies an impending change. The DAX/STOXX50 ratio has arguably completed a Head-and-Shoulder top and is currently sitting on the lower bound of the regression channel. A breakout to the downside could potentially signal the end of a two-decade-long uptrend, leading to a significant reversal in relative performance between DAX and STOXX50. A hypothetical investor looking to express this view could consider establishing a short Micro DAX and long Micro STOXX50 spread at a notionally equivalent amount. The added advantage of this relative trade is that beta exposure is substantially reduced. For example, if a global recession causes most equity markets to decline, this relative trade could still benefit if the DAX falls more than the STOXX50. Do note that a spread-trading strategy may incur additional commission fees versus a traditional outright strategy. Hot tip: Phillip Nova is currently offering zero-commission trading of the EUREX Micro-DAX® Futures and Micro-EURO STOXX 50® Futures. Click here to learn more. To create a notionally equivalent DAX/STOXX50 spread, an investor might short 1 Micro DAX futures (EUR 1 per index point) and go long on 4 Micro STOXX50 futures (EUR 1 per index point). The notional amount of the Micro-DAX futures would approximately be 15,800 EUR. Meanwhile, the notional amount of the 3 STOXX50 futures would approximately be 3 x 4280 = 17,120 EUR. The margin required for each contract of Micro-DAX would be 1,588 EUR while the Micro-STOXX50 would be 380 EUR (as of 10 July 2023). Disclaimer: The contents of this Idea are intended for information purposes only and do not constitute investment recommendations or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
EUREX:FDAX1!
by inspirante