• STOX50 bears are testing a weekly support level
• Momentum and MACD oscillators confirm bearish bias
• Four potential targets identified.
• Bearish scenario invalidated if 4281.7 level is broken
• Will ECB decision trigger a breakout?

European shares crawled higher on Thursday, while the euro entered standby mode as investors braced for the European Central Bank (ECB) rate decision.

Our focus this morning falls on the STOX50 Index which could be influenced by this major risk event!

As discussed in our week ahead report last Friday, the ECB rate decision is expected to be a close call thanks to stubborn inflation and weakening growth. While markets seem to be betting against a hike this afternoon, ECB policymakers have warned that the decision was still up in the air.

• The STOX50 may find itself under renewed selling pressure if the ECB raises interest by 25 basis points as growth fears weigh heavily on European shares.
• Should the ECB pause on rate hikes in September, this could offer some relief to European stocks – lending some support to the STOX50.

Regarding the technical picture…

The STOX50 index entered a weekly resistance and support level arena on 2 August, that would prove to keep the bulls and the bears in tight hand combat as the market bounced between those levels.

Bears have been testing the weekly support level more intensely during the last week or two and might be getting ready for a breakthrough. If they can break through the weekly support level and cause the price to go lower than the last bottom, an early stage of a new trend will be in process.

For a more exact picture of the possibilities with a defined trigger, stop loss, and target scenario, the FXTM D1 signals chart shows the way.

Both the Momentum as well as the MACD oscillators confirm that the momentum in the STOX50 market has changed to the bearish side and so all that is needed for the bears is to break through the 4180.4 price level to trigger a short opportunity. The stop loss will be behind the last swing at 4281.7 with four very conservative targets that become possible.

Attaching a modified Fibonacci tool to the trigger level at 4180.4 and dragging it to the lower top at 4281.7, the following targets can be established:

•           The first target is possible at 4139.9 (Target 1)

•           The second price target is likely at 4119.6 (Target 2)

•           The third price target is probable at 4079.1 (Target 3)

•           The fourth price target might reach 4028.4 (Target 4)

If the price at 4281.7 is broken, this scenario is no longer applicable.