Trade of the Week: EU50 set for fresh 2024 high?

• EU50 ↑ over 10% YTD

• Germany/Eurozone CPI & US PCE in focus

• 2% away from 2024 high

• Technical levels at 5110, 5050 & 50-day SMA

FXTM’s EU50 index, which tracks the benchmark Euro Stoxx 50 could be set for a volatile week.

That’s right, key inflation figures from both sides of the Atlantic may rock the index which has gained 3% month-to-date.

Note: The Euro Stoxx 50 represents the performance of the 50 largest blue-chip companies operating within eurozone nations.

Before we take a deep dive into the fundamentals, here are some fun facts about the EU50:

• Trading 2% away from 2024 high at 5142.3

• All-time high created back in 2000 at 5522.42

• Posted only one negative month (April) this year

• Up over 10% year-to-date

The lowdown…

European stocks have been on a roll in 2024, driven by expectations around lower interest rates, positive corporate earnings and an improving EU growth outlook.

With all the above discussed, here are 3 forces that may move the EU50 this week:

    1) Germany & EU CPI combo

The latest inflation figures out of Germany and the Eurozone will likely influence bets around when the European Central Bank (ECB) will start cutting rates this year.

Note: Germany’s May consumer prices index will be published on Wednesday.  Eurozone May consumer price index will be published on Friday.

It is worth noting that inflationary pressures in Eurozone’s largest economy and the bloc have been trending lower over the past few months. This has fuelled speculation around the ECB making a move with a 25-basis point cut in June practically priced in by traders.

Given how the incoming inflation print from Germany and the Eurozone may impact ECB cut expectations…

• A hotter-than-expected inflation print could pull the EU50 lower.

• Should the CPI report print within or below expectations, this may push the EU50 higher.

Fun fact: Over the past year, the Germany CPI report has triggered an upside move as much as 0.7%, or a selloff of 0.5% for the EU50 stock index in a 6-hour span post release.

 

    2) US April PCE report

In our week ahead report last Friday, we covered the US April PCE report.

But one thing we did not mention was how this report could rattle financial assets outside of the United States.

The incoming US PCE report is likely to influence expectations around what the world’s most important central bank does in 2024. Such a heavy risk event could send waves across global financial markets, impacting indices across the world including the EU50.

• More signs of cooling price pressures in the US may push the EU50 higher.

• If the PCE report prints above market expectations, this may send the EU50 lower.

Fun fact: Over the past 12 months, the PCE report has sparked bullish moves of over 0.5% and bearish moves above 0.3% on the EU50 stock index in a 6-hour window post release.

 

    3) Technical forces

Prices remain within a wide range on the daily charts with support at 4900 and multiple layers of resistance below the 2024 high at 5142.3. Still, the candlesticks are trading above the 50, 100 and 200-day SMA while the MACD trades above zero.

• A solid breakout above 5050, may open a path towards 5110 and 5142. Should bulls push beyond the 2024 high, this could trigger a move toward the next psychological point at 5150.

• Sustained weakness below 5050, could see bears target 4900 and the 100-day SMA at 4860.

EU50 MACD CPI inflation ECB PCE