IBEX 35, European Central Bank, Federal Reserve – Call Points
- IBEX 35 continues the rally despite fears of a Delta COVID variant, additional locks
- The European Central Bank will remain reassuring, asset purchases will continue
- European investors are waiting for Wednesday FOMC meeting with caution
Spain’s IBEX 35 benchmark stock index continues to rise following a successful comment by Christine Lagarde, President of the European Central Bank (ECB). In last week’s remarks, Lagarde confirmed that interest rates would not be raised even if inflation temporarily exceeded the bank’s 2% target in the medium term. Lagarde also noted that the bank will continue to purchase under its asset purchase program (APP). The ECB’s accepting stance boosted European stock markets, with the IBEX 35 index trading at over 8,700. Investors and traders may become more cautious on Wednesday, with Federal Reserve Chairman Jerome Powell set to speak after the central bank’s interest rate decision.
The IBEX 35 demonstrations appear to have been triggered by two main catalysts: ECB comments and technical factors. Investors were likely to have been strong in the ECB’s desire to stimulate the eurozone economy as concerns grew about the potential effects of a huge wave of new COVID infections. Fears of travel restrictions and possible locks fell on the Spanish index, marking its 200-day moving average (MA) before jumping.
During the 200-day MA trial, the index’s relative strength index (RSI) had dropped to 25.32, indicating a strong oversold condition. Although the index has reclaimed almost 500 points in just five trading sessions, it is far from reaching overbought terms. The daily schedule RSI is 50.73, indicating greater potential before this rally can be considered “overcooked”. If this movement continues, traders may seek short-term resistance to the 50-day marketing authorization.
IBEX 35 daily schedule
The chart is created by TradingView
The Spanish economy seems to benefit enormously from the “reopening” as pandemic rainfall begins to disappear from the rearview mirror. In comments made last week, Spanish Prime Minister Pedro Sanchez said that the domestic economy would grow by 6% in 2021 and 6% in 2022. Spain, a country heavily dependent on travel and tourism, saw a decline in GDP of 10.8% in 2020 as potential visitors stayed at home during the closures.
As travel restrictions continue to ease and tourists return to the Iberian Peninsula, Spain’s “revitalization” may continue to steam. Although many remain unemployed in Spain, government officials do not believe that structural problems exist, but most will be resolved as tourism recovers. Rising vaccination rates and improving labor market indicators are constantly improving the fundamentals of the Spanish economy. Positive national data, together with the ECB’s dovishness, could be a tailwind, pushing IBEX 35 back above its 50-day MA and above 9300 per year. Reviving COVID could boost momentum. With this in mind, traders should be wary of potential risks.
Major economic events ahead
Courtesy DailyFX economic calendar
– Written Brendan Fagan, intern
To contact Brendan, use the comments section below or @BrendanFaganFX Twitter