I still favor the downside but will obviously keep an eye on the natural gas and inflationary concerns in Europe.
The Euro Stoxx 50 futures markets were closed on Friday, but when looking at the chart overall, you can see that for the last week or so, we have been trading between the €3700 level on the bottom and the €3800 level on the top. Because of this, we are forming a bit of a rectangle, but at this point, I think it is only a matter of time before we have to make a decision for a bigger move.
It is worth noting that we are hanging around the 38.2% Fibonacci retracement level and had recently pulled back from the 50% Fibonacci retracement level. The 50-day EMA is sitting below the €3900 level and is drifting much lower. That shows just how strong the downtrend is, and it is worth noting that throughout the European Union, we have major issues economically. Not the least of which is going to be a potential disruption in energy.
If the energy situation in the European Union continues to be precarious, it is hard to imagine where the economy has an opportunity to go forward on a strong footing. The market will have to worry about these things, so I think it only makes a certain amount of sense that rallies will continue to see the 50-day EMA as a barrier.
The candlestick from Tuesday is a barrier to overcome. If we break down below the bottom of the candlestick, it is likely that we go looking to reach the €3600 level, possibly even down to the €3500 level. It would be a simple continuation of the overall downtrend, but I do not necessarily think it will be as brutal to the downside as it had been previously. After all, that was more or less a panic to the lower levels, and the stuff that we are worried about now is something that is already somewhat known. Because of this, it makes sense that we will fall further, but it will be a little bit more gradual. In fact, it is not until we break above the €3900 level that I would consider the market being able to go to the upside. At this point, I still favor the downside but will obviously keep an eye on the natural gas and inflationary concerns in Europe.