Will ECB, US GDP and big tech earnings lift mood?

European stocks and US index futures relinquished their earlier highs, crude oil sank further, and the euro led foreign currencies lower as the dollar and yen – have currencies – rallied. Risk assets have taken a beating over the past few days. The rising levels of virus infections and deaths, resulting in tougher restrictions and lockdowns across Europe, have revived worries about the economic impact of the pandemic, just when things were starting to look positive. France and Germany have reinstated some form of national lockdowns, and there are fears other European countries will follow suit to reduce the infections and deaths. Investors have therefore been forced to re-assess their optimistic projections on growth and are evidently reducing their risk exposures accordingly. Uncertainties related to the US presidential election, Brexit and company earnings, have all added to the pressure. But is there hope, and will the upcoming macro and micro events change the tone?

ECB to the rescue?

The European Central Bank will announce its decision on monetary policy soon and President Christine Lagarde will then deliver the ECB presser conference shortly afterwards. Until a few days ago, many market commentators were expecting this particular meeting of the ECB to be a damp squib of an event. While that could very well be the case, in light of the fast-deteriorating virus situation – and the falls in the European stock markets – acting now rather than later may make more sense. Why wait until things get really bad, if you are planning to provide more support in two months’ time anyway?

If the ECB does announce a change in its policy, namely an increase in PEPP, then watch out for a short squeeze rally for the major European indices. But if the central bank decides to sit on its hands, then the prospects of a sharp recovery for the markets look slim.  
 
US GDP and jobless claims

Also coming up shortly, we will have a couple of macro pointers from the world’s largest economy. Weekly initial jobless claims are expected to be a touch below last week's 787,000 print, while continuing claims are seen dropping below 8 million. We will also have the first estimate of the third quarter GDP. Economists are expecting to see a record annualized growth of 32% in the three months to the end of September. A stronger rebound could provide some relief for risk assets, while if the rebound was already much weaker than expected, and given the prospects of further weakness in Q4, then this could hurt stocks, crude and other risk assets.
 
Earnings

Mixed-to-positive earnings from European companies failed to halt the sell-off (from Royal Dutch Shell, Credit Suisse, Lloyds Banking Group and Volkswagen). The focus will be on the US, where most of the big tech giants are set to post their results today. We will hear from social media giants Twitter and Facebook, Google’s parent company Alphabet, as well as from Apple and Amazon.
The above earnings results will provide lots of volatility and trading opportunities for individual companies and possibly the affected sectors.
 
It will be important to pay close attention to what the CEOs of these companies say about the current situation and, more to the point, the outlook. Their views will offer fresh clues about the health of the global economy. So, if we hear more pessimism from these companies, then we could see renewed falls in stocks as investors price out their bullish and optimistic forecasts.
 
DAX on watch ahead of ECB

The DAX has broken lots of support levels, including the 200-day moving average because of the above macro concerns. From a technical point of view, the path of least resistance is therefore to the downside now. Rallies are likely to be faded into until the index creates a bullish reversal pattern. I have marked some resistance levels on the daily time frame to watch in the event we get a short squeeze rally later today. Around those levels we may see fresh selling. Meanwhile in terms of support, the key zone is shaded. As well as an old support and resistance area, we have the 38.2% Fibonacci retracement against the entire post lockdown rally.