Oil Declines to Weigh on European Indices

European equity markets are expected to open a little lower on Wednesday, with the recent drop in oil prices partially responsible but also as indices continue to struggle for momentum as they attempt to break above their recent highs.

The DAX touched its highest levels this year over the last couple of days and the CAC isn’t far behind it, trading at its highest point since April and not far from recording its own 2016 high. And yet, each time we’re hitting those levels, rather than sparking a wave of bullish momentum, the indices appear to be running into a brick wall. With the FTSE also appearing to struggle at these levels and the S&P and Dow in the US also looking at risk of possible correction, equity markets are possibly looking a little overextended at the moment.

USD U-Turn

Oil prices have been in decline over the last couple of days which will be part of the problem. With doubts being cast over the OPEC output deal and API on Tuesday reporting inventories rose more than expected last week – a rise which if confirmed by EIA today would all but offset last week’s decline – further declines in oil could lie ahead. From a technical standpoint, a break below $50.50 could trigger a move back towards $49. A similar break below $49 in WTI could prompt a move back towards $47-47.50.

Traders will also have a keen focus on the US dollar and the pound sterling in the currency markets. The US dollar index hit was trading at its highest level since the start of February on Tuesday, as investors continue to price in a December rate hike. As the index closes in on 100, we may see it run into some resistance, something we already saw yesterday just above 99. The pound is already trading a little lower today after hitting its lowest level since the flash crash yesterday, which appeared to come in anticipation of Mark Carney’s appearance, with traders possibly anticipating bad news either on the economy or the BoE Governors future.

USD/CAD Canadian Dollar Higher After US Consumer Confidence Stumbles

It’s looking like a rather quiet morning for economic data, with the only notable releases coming from the US this afternoon. The flash services PMI is expected to record a marginal improvement, while new home sales are expected to have eased a little while remained above 600,000 in September.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.