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DAX Index at Risk of Declining Ahead of UK PMs Brexit Vote

DAX index
DAX index

At the time of writing, the DAX index was consolidating following yesterday’s sharp rise to a new 2019 high and almost as quick decline back to the levels where the market started trading on Thursday.

The news of a Brexit deal between the UK and EU sent the DAX index higher, while the realization that it will be challenging for PM Johnson to get the UK parliament to vote on the deal tempered investors’ buying appetite.

The Financial Times anticipate that the proposal will be voted down, as the PM will only garnish 318 MPs backing the plan, while 321 MPs are projected to vote against it. The problem for DAX investors is that the vote will happen on Saturday when the market is closed, leaving them exposed to price gaps as the index opens for the new trading week.

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From a technical perspective, the price had a healthy 8.44% return from the October low to the October high, and yesterday’s sharp rise and decline formed a so-called “pin bar” candlestick, which is a reversal candle.

The combination of the 8.44% return and the pin bar, suggests that some traders booked profits yesterday. The RSI-14 indicator, seen in the lower panel of the chart below, is also near overbought levels, suggesting that gains in the DAX 30 index are limited.

Per the pin bar candlestick, profit-taking should continue as long as the index trades below yesterday’s high of 12832.1, and the DAX index might reach the 12436.5 level, which is the 38.2% Fibonacci retracement level of the bull leg from the October low to high. However, if the index manages to take out the top, then the bias turns upwards once again.

It will be a very interesting weekend for traders, as the fate of the DAX index lay in the hands of UK PMs.Download our latest quarterly market outlook for our longer-term trade ideas.

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