The French 40 (CAC 40) has pulled back slightly during the trading session on Tuesday, as the 50-Day EMA has caused a little bit of noise near the €7300 level. This indicator is one that a lot of people follow, and we broke through it a couple of weeks ago that a lot of traders paid close attention to. We fell toward the uptrend line underneath that is marked on the chart but have since bounced.
If the France 40 breaks above the 50-Day EMA, then it’s very likely that the market will try to work its way back toward the €7500 level. That is where the recent selloff started, and it will attract a certain amount of attention due to that being such a huge area of supply. If we were to break above there, then the market is more likely than not going to test the recent highs.
The alternate scenario would be to break down below the uptrend line, which then allows the move to the 200-Day EMA, currently trading around €7000. This obviously would be an area that has a lot of psychological attention paid to it, as it is a large, round, psychologically important figure and an area where we had seen a bit of action previously.
Keep in mind that the CAC 40 is highly sensitive to luxury brands, so if the wealthy consumer continues to spend, that will drive the CAC 40 higher. On the other hand, it is not immune to recessionary issues, although the higher in luxury brands do tend to insulate it a bit more than multiple other indices throughout Western Europe and the Americas. However, if the wealthy consumer stop spending, the CAC 40 falls right along with the rest of the other indices.
Pay close attention to the euro, because if the euro continues to strengthen, that could put a little bit of negativity in the market, as it will make French goods more expensive for wealthy consumers around the world. As things stand right now, with the euro hovering around 1.08, things are still rather good from a currency standpoint, but it is an external factor worth paying attention to.
As the market is currently trading between the 50-Day EMA above and the 200-Day EMA below, it generally means that you will see a bit of volatility. This will be especially true with the ECB meeting on Thursday, as the European Central Bank will be making a monetary policy statement, which obviously will have a major influence on stocks and the currency in the European Union. As things stand currently, the market is still very much in an uptrend but in a state of flux.
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