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DAX & FTSE Plummet as Outlook for European Equities Deteriorates

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  • Fire at Ukrainian nuclear power station has markets on edge ahead of the weekend
  • FTSE 100 on track for worst week in over a year, eyes 7000
  • DAX sell-off sees the index around 10% lower for the week

European equities have been particularly hard hit amidst the Ukraine invasion and could get worse as trading continues on Friday ahead of the weekend. Last week Friday the picture was looking a lot rosier for equities after ongoing Russia-Ukraine talks were viewed favorably by the market, despite the fresh rollout of US and EU sanctions, with the expectation that we had reached ‘peak shock’. The situation appears very different just a week later.

Today, markets are reacting to a nuclear scare as a fire broke out in a building at the site of Europe's biggest nuclear power station. The fire is reported to be contained and there are no signs of elevated levels of radiation. The fire looks to have been to the result of tense fighting in the area this morning.


Just prior to the invasion of Ukraine, the FTSE was outperforming other major equity indices which had cooled off due to increasing speculation of rate hikes in an attempt to cool runaway inflation. In theory, rate hiking cycles result in lower equity prices, particularly the tech heavy growth stocks which benefitted the most form the recent period of ultra-low interest rates. In January, the FTSE benefitted from being relatively light on tech stocks and strengthened while US equities declined from the all-time high.

The conflict in Ukraine has led to a downward revision of prior hawkish rate hike bets as the spillover effects of the war on the UK remain cause for concern. Price action has picked off from yesterday when ITV and Russian-linked Polymetal International led losses.

FTSE has sold off drastically throughout the London AM session, approaching the psychological level of 7000. This has been a key level historically, as seen in the weekly chart, as it has supported the FTSE on numerous occasions. However, in such volatile markets, key levels of support and resistance are more susceptible to breaks and should 7000 fail to hold, 6829 and 6640 become key in attempting to keep the sell-off at bay.

FTSE Daily Chart

DAX & FTSE Plummet as Outlook for European Equities Deteriorates

Source: IG, prepared by Richard Snow

The weekly chart helps to view key levels of support and the historically important 7000 level

FTSE Weekly Chart

DAX & FTSE Plummet as Outlook for European Equities Deteriorates

Source: IG, prepared by Richard Snow



DAX price action since the turn of the new year makes the FTSE’s recent decline appear tame. The DAX 40 Index has declined just shy of 20% since the November 2021 high with little sign of reprieve while the FTSE has dropped around 9% since its 2022 high.

The DAX first showed signs of serious short-side vulnerability on the 24th of February when price action dropped to 13800 and shot back up and traded significantly higher the day after (last Friday). Since then, we have witnessed a 10% drop in a single week.

The zone of support (13600 – 13800) failed to stop selling over the past 48 hours as the index dropped as low as 13210 and remains around similar levels at the time of writing (11 GMT). 13210 remains key if the sell-off is to abate ahead of the weekend with 12955 the next level of support if the situation is to get any worse.

DAX Daily Chart

DAX & FTSE Plummet as Outlook for European Equities Deteriorates

Source: IG, prepared by Richard Snow

Given the nature of the latest declines, the weekly helps to spot potential levels of support on a larger scale. Apart from the prior mentioned support levels, the weekly chart highlights 11690 – an level that held up previous declines.

DAX Weekly Chart

DAX & FTSE Plummet as Outlook for European Equities Deteriorates

Source: IG, prepared by Richard Snow


--- Written by Richard Snow for DailyFX.com. 4th March 2022

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