The CAC 40 index is up by 0.20% as bulls remain optimistic about the reopening of the global economy. The index is trading at €5,420, which is the highest it has been since March 5. The gains are also in line with the performance of other European indices like the German DAX and UK’s FTSE 100. Here are the top reasons why the CAC could continue rallying.
France-US relationship
France and the US have had a strong relationship for decades. In 2018, more than 24,000 French companies exported to the US. That brought the total volume of exports to more than $38 billion. The US sold goods worth more than $36 billion to France.
The relationship between the two countries has, however, been relatively challenged in recent years. Indeed, president Trump has in the past threatened to impose tariffs on key French products like wines.
This will change during the Biden presidency. In the campaign, the incoming president castigated the incumbent for what he viewed as downgrading America’s allies. He also promised not to impose any tariffs on France and other European countries.
That will be a good thing for French companies in the CAC 40 index because it will mean an open access to one of their biggest markets.
Covid cases falling and vaccine
The CAC 40 is also rising because of the sudden decline in the number of Covid-19 cases in France. The health ministry confirmed more than 22k new cases yesterday. While that’s a high number, it is less than last week’s peak of more than 86k. It is also the lowest reading since October 21.
Therefore, the low number of cases coupled with the possibility of a Covid vaccine means that the French economy will recover faster than expected.
Finally, the CAC 40 is rising because of the relatively weaker euro. The euro is down by about 0.15% against the US dollar today. A weaker euro is usually positive for companies in the CAC because it makes their exports relatively cheaper.
Top movers in the CAC
Most companies in the CAC 40 are in the green today. Sanofi, the giant pharmaceutical company, is the best-performing, with its shares up by 2.80%. It is followed by Hermes, Dassault, Carrefour, L’Oréal, and Louis Vuiton. All these shares are up by more than 1.70%.
On the other hand, the worst performers in the index are WFD Unibail Rodamco, Safran, Societe Generale, and Airbus that are all down by more than 1%.
CAC 40 technical outlook
On the daily chart, we see that the CAC 40 index has been on a strong uptrend recently. The price has moved above the 61.8% Fibonacci retracement level and is close to the 78.6% retracement. (This retracement joins the lowest and highest levels this year)
It has also risen above the first support of the Andrews Pitchfork. Therefore, I expect that the index will continue rising as bulls aim for the 78.6% retracement and the median line of the pitchfork at €5,592.
On the flip side, a move below the 61.8% retracement at €5,160 will invalidate this trend.
Don’t miss a beat! Follow us on Telegram and Twitter.
CAC technical chart
More content
- Download our latest quarterly market outlook for our longer-term trade ideas.
- Follow Crispus on Twitter.
- Do you enjoy reading our updates? Become a member today and access all restricted content. It is free to join.