Is it safe to buy the Euro Stoxx 50 index dip?
- The Euro Stoxx 50 index has pulled back in the past few days.
- Bank constituents pulled back amid concerns about Deutsche Bank.
- The European Central Bank (ECB) has become the most hawkish central banks.
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The Euro Stoxx 50 index has lost its bullish momentum amid a relatively hawkish European Central Bank (ECB) and rising banking concerns. The index pulled back to a low of €3,983, the lowest level since January 6. It has fallen by about 4.50% from its highest level this year.
European stocks comeback fades
The Euro Stoxx 50 index has come under pressure in the past few weeks because of the rising concerns about the banking sector. On Friday, BNP Paribas shares plunged by over 5% as concerns about the banking sector continued. Other banking groups in the index like ING and Santander also retreated.
This sell-off was triggered by the sharp increase in credit default swaps of Deutsche Bank, the biggest banking group in Germany. However, as I wrote here, concerns about the company seems to be overblown.
The Stoxx 50 index also pulled back after the relatively hawkish decision by the European Central Bank (ECB). In a statement this month, the ECB decided to hike interest rates by 0.50% and hinted that more increases were on the way.
There have been several other catalysts for the index in the past few days. Vonovia share price has fallen by about 11% in the past five days as concerns about the real estate sector continue. The company also recently appointed Deloitte to investigate bribery allegations.
Other top laggards in the Stoxx 50 index were Philips, Schneider Electric, TotalEnergies, and Vinci have dropped by over 5% in the past week. The top performers in the index have been Prosus, Sanofi, Kering, Munich Re, and L’oreal. Prosus stock has jumped by 8%, helped by the relatively strong Tencent earnings.
Euro Stoxx 50 index forecast
The daily chart shows that the Euro Stoxx 50 index has lost momentum in the past few days. It has dropped by more than 4.4% from the highest level this year. The index remains slightly below the 50-day moving average but it remains above the 100-day EMA. It also did a break and retest pattern by retesting the key support at €4,026, the highest point on December 13 and March 29.
Therefore, the index will likely resume the bullish trend as buyers target the key resistance level at €4,300, which is about 4.3% above the current level. The alternative scenario is where the index pulls back and retests the support at €4,000.
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