The European stock indices plunged dramatically as the investors trade the hawkish sentiments from the ECB. This is how interest rate typically impacts the market.

Hawkish Sentiment – The global central banks are coming up with the contractionary monetary policies. The Bank of England raised its interest rates a couple of months ago, the Federal Reserve also raised the rates in December and the Bank of Canada joined the race by increasing the interest rate in the previous week.

Therefore, the investors are also expecting some action from Mr. Draghi. Though ECB isn’t expected to hike the rate, we may hear something hawkish from Mario Draghi. It can be talks on tapering the Asset Purchase Program.

The increased cost of capital reduces the profitability of corporate sector and in response, the investors pay fewer dividends. That’s the whole story behind the bearish movements of DAX and CAC. Let’s take a look at key trading levels.

DAX – GER30 – Trading Levels

Support     Resistance

13519.31    13598.39

13479.02    13637.18

13440.23    13677.47

Key Trading Level:    13558.1

CAC – FRA40- Trading Levels

Support     Resistance

5515.71       5560.91

5496.17       5586.57

5470.51       5606.11

Key Trading Level:    5541.37