Euro Stoxx 50 index slips to 200 EMA European headwinds rise

The Euro Stoxx 50 index sell-off continued on Friday as concerns about the European economy continued. The index retreated to a low of €4,200, which was lower than the year-to-date high of €4,486.

The Euro Stoxx 50 index continued dropping as European LNG prices jumped. Prices of the TTF, the European benchmark, rose by 14% to €34.65, the highest level in months. This rally happened after a Chevron unit in Australia went to a strike, raising concerns about supply.

The implication of this is that the cost of doing business in the region will go up. As such, there are concerns about their competitive at a time when business confidence has slipped. The most recent data showed that the German business confidence slipped in August as the economy contracted.

The Euro Stoxx 50 index has also retreated because of the ongoing tensions between China and Western countries. China announced new measures to ban government workers from using the iPhone citing security reasons. The move was a retaliation after Washington barred sensitive technologies from being sold to China.

Most importantly, as I wrote in this report on DAX and this one on CAC 40 index, there are concerns about the Chinese economy. Recent economic numbers revealed that the Chinese economy’s exports, retail sales, industrial production, and manufacturing output have slumped.

Most analysts believe that the real situation in China is worse than what official numbers are saying. China’s economic activities are important for European stocks because most companies do a lot of business there. For example, Stoxx 50 constituents like LVMH, Kering, Volkswagen, and Mercedes count China as their biggest market.

The Stoxx index has also struggled after several companies published weak results. Adyen stock price plunged after it reported weak results. Siemens results were significantly weak mostly because of its energy business. Luxury groups like LVMH and Kering are seeing weak demand in China and the US.

The daily chart shows that the Euro Stoxx 50 has lost momentum in the past few months. It has faced a lot of resistance at €4,415, the highest level in April, May, and June. It made a false breakout in August and moved to the highest level on €4,494. 

The index has moved below the ascending trendline that connects the lowest swings since December last year. It has also moved below the 50-day moving average and is sitting at the 200-day moving average.

The Relative Strength Index (RSI) has formed a descending channel. Therefore, the index will likely continue falling as sellers target the next key support at €4,000. The stop-loss of this trade will be at €4,325.

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