DAX Index Retreats from Record Highs as Brexit Comes in Focus

The Dax index traded higher yesterday despite mixed PMI reports from the euro zone. It opened at 13,350.48 and tapped a new historic high at 13,426.29. By the end of yesterday’s trading, it had settled at 13,407.89.

European Services Sector Growing But Not Manufacturing

According to data released by Markit yesterday, the services sectors of France, Germany, and the whole euro zone continue to grow in December. The French services PMI printed higher at 52.4 than the 52.1 forecast. Germany’s version of the report also topped the 51.2 forecast at 52.0. Meanwhile, the region-wide services PMI was at 52.4 and beat the 52.0 estimate.

On the other hand, the manufacturing PMIs paint a bleak picture of the industry’s health. Remember that readings below the 50.0 figure point at a contraction. Only France had a reading above it at 50.3. But even so, it still missed the market consensus at 51.5. Germany’s manufacturing PMI was even lower at 43.4 compared to both the 44.6 estimate and November’s 44.1 reading. Lastly, the euro zone manufacturing PMI disappointed at 45.9 versus the 47.3 forecast.

US-China Phase One Deal

However, it would seem that market participants continued to bask in the euphoria brought about by the phase one deal announced by the US on Friday. Chinese tariffs will now be rolled back and additional levies have been cancelled. They were set to take effect last Sunday, December 15. In exchange, China agreed to buy at least 200 billion USD-worth of goods until 2021.

Brexit Concerns in Focus?

Today, could be a different story for European equities markets though. As of this writing, the DAX index is trading at 13,348.22 which is 59.44 points lower than where it opened. There are no top-tier economic reports due from Germany or the euro zone today. However, it seems that the DAX is being dragged down by concerns that the UK might end up with a no-deal Brexit. Remember that European economies are closely intertwined and a no-deal Brexit may also have repercussions to the German economy too.

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DAX Index Outlook

The 4-hour chart of DAX index CFDs shows that it’s testing the area where it previously made highs on November 19 and December 2. Using the Fibonacci retracement tool, 13,330.0 also aligns with the 23.6% Fibonacci retracement level when you draw from the low of December 10 to the high of December 13. Reversal candles around this level could hint an impending rally back to 13,450.0

On the other hand, a break below the 38.2% Fib could mean that the DAX may soon fall to December 5 and December 6 highs at 13,170.0. This area also coincides with the 50% Fib level.

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