Improving global growth prospect is bullish for the French economy. Will FR 40 continue rising?
The French economy accelerated in the last quarter of 2016 as the Q4 GDP grew 0.4% over quarter after 0.3% growth in third quarter. The Markit Flash Composite Purchasing Managers’ Index (PMI) rose from 55.9 in February to 56.8 in March, with Services PMI reaching 57.5 from 56.4 in the previous month. Services account for 79% of the economy. At the same time, both the trade balance deficit and the current account deficit fell in February, and the consumer confidence remained steady at over nine year high in March at 100 points recorded in February.
Retail sales grew 0.7% in February after 0.3% gain in January. However industrial production slumped 1.6% in February after 0.2% contraction in the first month of 2017. As the outlook for global economic growth improves the French economy will continue accelerating unless political uncertainty surrounding presidential elections negatively affects economy’s short term growth prospects.
On the daily timeframe, CAC 40: D1 has been rising after the US presidential election in November. The price has remained above the 50-day moving average MA(50).
- The Donchian channel is tilted upward indicating uptrend.
- The Parabolic indicator has formed a buy signal.
- The MACD indicator is neutral.
- The stochastic oscillator is falling after failure to reach the overbought zone.
We believe the bullish momentum will continue after the price closes above the upper boundary of Donchian channel at 5145.74, confirmed also by the last fractal high. This level can be used as an entry point for placing a pending order to buy. The stop loss can be placed below the last fractal low at 5049.84. After placing the order, the stop loss is to be moved every day to the next fractal low, following Parabolic signals.
Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level (5049.84) without reaching the order (5145.74), we recommend cancelling the position: the market has undergone internal changes which were not taken into account.
Summary of technical analysis:
Position: Buy
Buy stop: Above 5145.74
Stop loss: Below 5049.84