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For the past six trading days, German benchmark stock index has been hovering around 50 day moving average (DMA), which is also coinciding with previous peak made in January this year. Now key question lies - Will ECB be able to spark enough risk affinity to push the index higher towards 200 day moving average?
However, DAX isn't the only one awaiting ECB, almost all European bourses are awaiting actions. For example European blue chip index, EuroStxx50 is also at previous peak made in January, around 3050 area.
To know for sure, there lies several other questions -
Will European Central Bank (ECB) introduce further monetary stimulus?
If the answer to the above question id yes, then will that be enough to spark risk affinity?
Yesterday in our post named, "ECB: to act or not to act", http://www.econotimes.com/ECB-to-act-or-not-to-act-174476 we compared current economic and financial market conditions, with that of prevailing in January and in December. According to our analysis, massive deterioration seen during January and early February has abated a lot. Moreover recent uptick in commodities including oil likely to make the bank more cautious, since it has already promised to ease till March 2017.
Ending that program abruptly, in the face of inflation would do more damage than it would do if it doesn't act today.
Even saying so, we expect ECB might still act, as not acting could be averse to the current improvement but not with any bazooka. There could be a mere €10 billion increase to the asset purchase program starting this or next month. That would increase the current commitment with a total €100-$120 billion.
So it is best not to expect much from ECB, that means shorting the indices could be a good idea, with stop loss or like we said in the previous post, best to wait in the sideline and enter post-announcement.
