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DAX Index Bounces as EU Might Offer Short Extension to Pass Brexit Deal

DAX Index
DAX Index

At the time of writing, the DAX index was up on the day by 0.41% as traders tried to recuperate yesterday evening’s decline following the disappointment that the UK parliament will not be railroaded into approving the details of the new UK-EU deal. UK MPs did, however, support to go ahead with the initial deal so the bearish reaction in the DAX index could be attributed to the old trading maxim “buy the rumor, sell the fact.”

Effectively, traders that were betting on some Brexit deal or the rejection of a “no-deal Brexit,” bought at the lows earlier this month, and when it is no longer speculation that we will avoid a “no-deal Brexit,” they have now sold.

The UK has requested an extension to January 2020, but if this is the only option then PM Johnson will probably ask the parliament for a snap election before Christmas, which will increase uncertainty and could send the DAX lower. However, if the EU allows for an extension to January 2020, that could be ended earlier for the UK to pass the new legislation then that will probably put the general election out of the table, and the DAX could linger around current levels. Earlier today, Germany’s Mass said that pushing back the Brexit date by two or three weeks was no problem, so some within the EU are happy to give PM Johnson a hand.

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DAX Index Technical Outlook

Technically, the DAX index is trading sideways between the October 17 high and October 18 low, but the multi-day trend is bullish as the price has been creating higher and higher lows as seen in the chart below. As the very short-term trend is neutral between the interval above, the price could trade either way following a breakout.

A break to the October 17 high might send the index to the 13048 levels, per the rectangle pattern price objective, while a break to the October 18 low at 12559.5 might sent the index to the 12372 level. Read this educational article if you would like to learn more about the rectangle trading pattern.Download our latest quarterly market outlook for our longer-term trade ideas.

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