DAX Index: Profit Taking Kick-in as US-China Trade Talks Might Fail to be Ratified

Today, the euphoria of DAX index buyers appears to have settled as they wait for the latest news on Brexit negotiations and digest what the US-China trade deal means for the world economy.

  • DAX index remains capped by a longer-term downtrend and the 2019 high.
  • DAX index rose on hopes of Brexit and China-US trade deal talks, but nothing has been confirmed in writing, and both deals could fall apart sending the DAX index lower.

Last week, the DAX index gains were capped at 12563, which also happens to be in the proximity of a year-old downward sloping trendline that goes via the May and June 2018 highs, and the July 2019 high. The DAX index is also trading near the 2019 high of 12633.6, so it makes sense that bullish mood could decline around current levels, and the index might drift lower towards the October 8 high of 12160. However, the bullish traders remain in control. They might try to take out the 2019 high, and if they do, then the DAX 30 might reach the next significant high, the July 27, 2018 top at 12887. A break to the 2019 high would also mean that the DAX 30 would leave behind the year-old trendline that has been capping price.

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DAX Index Chart

DAX index chart

Brexit Negotiations

The DAX index rose partially on the news of the breakthrough in Brexit negotiations. However, the UK and EU still need to reach a complete deal before the end of Tuesday October 15, to give enough time for the EU to implement the new deal at Thursday’s EU summit. PM Johnson would also need to convince his own peers in parliament that the new agreement is a one they should vote for. One challenge is the DUP and their deputy leader, Mr Dodd, has already rejected the deal.  More light on the negotiations should be shared in the next 48 hours, but as it stands right now, it would not be surprising if the UK was being forced to ask for an extension to further negotiate and possibly for announce a snap election. For the DAX index, a failure in the Brexit talks could send it down lower as traders book profit on last week’s gains.

US-China Trade Wars

China has agreed to buy between 40 to 50 billion of US agricultural goods, there were also some concessions for intellectual property, currency measures, and financial services. In return, the US will not raise tariffs as planned in October, but the December duty hikes are still moving ahead.

However, none of was this written down. Instead, the US and China have given themselves between three to five weeks to finalize the deal.  This points towards how fragile the deal, and today Bloomberg reported that China would like to have more talks before signing Trump’s ‘Phase One’ agreement. Chinese media has also reported that the markets should not be too optimistic about the negotiations. If the talks fall apart then the DAX index could easily give up its gains.

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