CAC Opens on a Rally – High Expectations on ECB Meeting

The stock market opened higher today and is trending higher on hopes of dovish forward guidance at the ECB press conference.

The CAC is up 0.5% on the day as the market gets traction from the possibility of hearing some dovish comments from the ECB president after the monetary policy meeting later on today.

The French stock market has been pressured lately by a snap general election that has yielded a divided National Assembly.

French President Macron had called for the general election soon after the defeat inn the EU parliamentary election. Which saw Macron’s party lose a considerable number of votes. The plan didn’t pay off, as Macron’s party bled votes also in the general election.

The outcome has created 3 blocks in the National Assembly, with little likelihood of either of these 3 blocks being able to create an alliance to form a government. The market widely expects the ECB to keep rates on hold.

But the market wants to hear some forward guidance at the press conference that could create some bullish momentum. The current political situation in France has created a hung parliament.

And Macron needs to appoint a new prime minister that can get a consensus from the assembly. Given the division among the 3 blocks that is likely to be difficult task. For the current cabinet is only acting as government and has limited power.

Technical View

The day chart below for the CAC shows a market that has been trending sideways since mid-June. The top and bottom ranges are defined by the red and black lines at 7,708 and 7,461 respectively.

Yesterday’s candle was very close forming to a Doji star and in fact today’s candle opened higher. We may see further highs in the coming days, when the market may meet strong resistance in the area of the red line.

For a new bull trend to begin to take place, we need to see the market close above the red area. Then we can only consider the bull trend is in place once the market breaks through the Ichimoku cloud.

To the downside, the market will face strong support from the bottom of the current range at 7,461. If that breaks, the next support is at 7,317.