Corporate Earnings and Greek Uncertainty Put Pressure on European Equities; DAX Hovers Near 6350 Support

Equity markets in Europe are once again seeing downside pressure as corporate earnings disappoint, uncertainty relative to the next incarnation of government leadership in Greece continues for nearly a week and JP Morgan makes headlines by reporting trading losses of $2 billion.  The declines in equity markets as showing in Asia and in US futures as well and a negative close for the week is likely to throw a bearish shadow on what will likely follow into Monday.

Negative earnings figures were reported by Credit Agricole and Telefonica, which saw major declines in first quarter earnings.  Credit Agricole was the bigger story, with quarterly profits dropping by more than 75 percent relative to Q4 2011.  Credit Agricole is the third largest bank in France and this story, when combined with the latest headlines from JP Morgan, propped up concerns for the financial sector which were large enough to bring down the major indices for the day.

The Euro Stoxx 600 is down by 0.5 percent and this latest move is resulting in a decline of 1.1 percent for the week.  A negative close for the week will be the second consecutive bearish finish and this suggests that this year’s equity rally has found its top.  For the year, we are still seeing gains of roughly 2.5 percent in European equities but the latest risk events are seen weighing on sentiment and pushing investors to take gains in anticipation of a major downside reversal.

Marco data is another factor to watch, with the latest inflation figures out of Germany showing that consumer prices have slowed to their lowest levels in 5 quarters, with CPI figures coming in at 2.2 percent (on a yearly basis).  We will see similar figures out of the US today, with the Producer Price Index (PPI) scheduled for release along with the University of Michigan Consumer Sentiment Survey and employment data out of Canada.  All of these releases are expected to show declines, so if these forecasts are correct, we could see an additional wave of selling pressure as markets close up on Friday.

Technical Analysis:

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The NZD/USD continues to see major selling after breaking down at previous support near 0.8040.  This area was also the 200 day EMA in addition to being the range low, so the downside follow through has not been a surprise.  This is now to be viewed as major resistance going forward, as an acceptable area to enter into new short positions if given the chance.  We are seeing key Fib support at 0.7780, so we are likely to see some sort of bounce here in the short term before the bear momentum resumes.

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The DAX is operating within some clearly defined levels with prices hovering just above historical and Fib support at 6350.  We have already seen a break and daily close below the 100 and 200 day EMAs, so a break of 6350 is a signal that the longer term downtrend is still in place and focus will turn to psychological support in the 6000 region.