By IFCMarkets

Higher French retail sales signal improved growth

July retail sales rose in France while the economy didn’t grow in the second quarter. Will the CAC 40 stock market index continue the rebound after the sharp drop following the UK decision to leave the European Union?

France’s CAC 40 has gained 7.5% since Britain voted to leave the European Union, recovering most of the losses. France’s GDP showed no growth in the second quarter partly due to massive strikes against the labor reform adopted in August. While unemployment fell to 9.9% in Q2 from 10.2% in Q1 business sentiment deteriorated as businesses grew more pessimistic on export demand. This resulted in declining business confidence indicator which fell to 101 points in August from 103 in July according to the National Institute of Statistics and Economic Studies (INSEE). The 100-point long-term average is the level separating improving and improving and worsening business expectations. Consumer confidence improved slightly in August as consumer sentiment indicator edged up to 97 points in August from 96 points in July but still remained below the long-term average of 100. Despite businesses growing less optimistic and consumers remaining pessimistic, Markit’s composite Purchasing Managers’ Index (PMI) rose in August from 50.1 in July to 51.6 in August. However, businesses reported declining employment in August which points to lower likelihood of accelerating recovery after stagnant second quarter. The stagnant euro-zone economy, accounting for about 70% of France’s exports, is not providing external demand for France’s economy which didn’t grow in the second quarter because of a slowdown in domestic demand. A recovery in either is needed for accelerating French economic growth. On a positive note July retail sales were published on September 5, showing a 1.1% rise over month compared with a 0.2% reduction in previous month. However the current account and industrial production fell in July. On September 22 Business Confidence Index for September will come out and the next day flash Service, Manufacturing and Composite PMIs will be published, the tentative forecast is positive..

On the daily chart FR40: D1 has been falling after forming a double top pattern. The price has breached below the 200-day moving average MA(200) and the 50-day moving average MA(50).

• The Donchian channel indicates no certain trend: no slope has formed yet.
• The Parabolic indicator gives a buy signal.
• The RSI oscillator is falling but hasn’t yet reached the oversold zone
• The MACD indicator is above the signal line and the gap is falling. This is a bearish signal also.

The price has breached below the last fractal low and we can go short right away. Risks can be limited by placing the stop loss above the last fractal high at 4568.92. After placing the order the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level (4302.02) without reaching the order we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Technical Analysis Summary

Market Analysis provided by IFCMarkets