March 11, 2022 15:23:59

Risk appetite is rebounding again today after this week’s whipsaw price action. As we wrote yesterday, big rebounds are inevitable during times of high uncertainty and volatility. We also added that previous rallies like the one seen on Wednesday in stock markets typically haven’t signalled a turning point in the crisis.

Today, comments from President Putin have hit the wires noting there are “positive” shifts in discussions with Ukraine. This comes even as reports suggest Russia is attempting to encircle the capital, Kyiv. Markets are still very much headline driven and things can turn very quickly. It is also Friday, and traders can be prone to quickly de-risk, especially ahead of the weekend.

We note investors pulled almost $14 billion out of European equities in the week up to March 9, according to figures collected by investment bank, Bank of America. This is the largest weekly outflow since the data series began in 2000. This comes after yesterday’s more hawkish than expected decision by the ECB to rein in the punchbowl of liquidity. This regime shift in policy obviously comes with large negative geopolitical risks.

Weekly Dax chart rebounds above 200-week SMA

The benchmark German equity index had been tracking in a sideways range since March last year. Prices struggled to gain a foothold above 16,000 and we have seen seven straight weeks of losses in eight since the start of January.

The plunge through the bottom of the range at 14,816/18 saw the index take out the 100-week SMA at 14,151 and the 200-week SMA at 13,110. But the retrace this week means the latter is now strong support, ahead of Monday’s low at 12,438.

Prices are now trading just below a resistance zone. This includes the 38.2% Fib level of the high/low move at 13,915 and pre-pandemic high at 13,795. Next levels if buyers can close above here are the 100-day SMA and the midway point of the high/low at 14,369. Initial support is the 23.6% Fib level at 13,353.