Comment: Euro Stoxx 50 pushes to a 23-year high

COMMENT : Euro Stoxx 50 pushes to a 23-year high following ECB’s ‘slightly dovish’ tone – by Daniela Hathorn

 
“European stocks continue to ride the most recent ‘risk-on\ wave. The DAX 40 has advanced 3.3% in the past week, while the Euro Stoxx 50 has risen over 5% to a 23-year high above 4,640 after pushing above the 2007 high of 4,595 for the first time last month.

The ECB policy meeting on Thursday failed to offer any new guidance on when rates will start to come down, something that was already anticipated given the rise in CPI in December. But President Lagarde did mention that the disinflation is at work, suggesting that the central bank does not feel the need to tighten policy any further even if consumer prices have risen slightly. This in itself could be seen as slightly dovish given how Lagarde has been quick to push back on any mention of rate cuts in the past, going as far as to continue suggesting rate hikes were on the table up until a few meetings ago. This seems like a point of inflection in the ECB’s stance but that still doesn’t provide any clarity on when rates will be cut.

The slightly dovish tone enabled equities to push further higher and it allows for them to be supported in the immediate future. That said, current conditions continue to show that the rallies are becoming over-extended once again. The RSI on the Euro Stoxx 50 daily chart is on the verge of pushing above 70 once again. The last time it did this, it allowed for two more weeks of continued bullish momentum before turning lower and correcting the short-term path. This suggests buyers could remain in control for the foreseeable future but new buyers should be aware of signs of exhaustion within the rally as a pullback should be on the cards soon.”
 

Daniela Hathorn is Senior Market Analyst at Capital.com