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CAC40: Double top with a bearish divergence

Economic growth in the Euro zone slowed in the second quarter as France stagnated and Italy lost momentum, held back by an uncertain global outlook that is even weakening investment in Germany.

According to official statistics released last week, the French economy stagnated in the second quarter after an encouraging 0.7% rise in gross domestic product (GDP) in the first quarter, with investment falling away although the Finance Minister claimed that the second biggest economy in the Euro zone was still on course to print 1% growth over the year as a whole.

In France, a jump in exports was not strong enough to offset the impact of weak consumer spending and growth came to a standstill after a strong first quarter.

The Index fell 1.74% since the start of the month and rose 17.1% year to date and is in a potential phase change from bullish to a warning phase. Last week, CAC40 plunged to close near the low of the week, on a wide range. The stochastic made a clear bearish divergence and is showing a bearish momentum although is above the 50 mid line.

Expecting a downward move to weekly key level at 4,800 (scenario 1) or even a move to a weekly support at 4,600 (scenario 2) on a break below a weekly resistance at 4,975.

Fra40 is a CFD written over CAC40 futures.