DAX Index Daily Price Forecast – Upward Support Likely on Trade Optimism

Positive market reaction to the extension of the 1^st March trade deadline supports upward momentum for the DAX today.

DAX futures traded in the international market with an upward bias, gaining 0.64% at the time of writing, supporting a positive open.

An extension to the 1st March deadline is positive for the DAX and the broader market near-term. The U.S administration extended after making substantial progress on trade talks with China. The upside for the DAX will likely be limited, however.

Continued uncertainty over Brexit remains. Theresa May delayed parliament’s meaningful vote on Brexit until 12^th March over the weekend. This will likely create more political turmoil and raise some doubt over whether there will be enough time to close out a deal before 29^th March 2019.

When considering the fact that Britain is Germany’s 2^nd largest export market for autos, progress on trade negotiations between the U.S and China brings EU trade terms ever closer to the scrutiny of the U.S administration.

The U.S is Germany’s largest auto export market. The impact of U.S tariffs on auto imports would be a significant one near-term on Germany’s auto sector.

While the near-term focus will likely to remain on trade negotiations and what lies ahead, Germany’s manufacturing sector has struggled at the turn of the year. This has left the DAX with heavier losses than its peers within the region. While the ECB has remained dovish, a convergence in monetary policy between the ECB and FED has supported $1.13 levels. The EUR has held its ground in spite of materially weaker economic indicators out of the Eurozone. Upward momentum in the EUR will be another factor to consider near-term.

A silver lining for the DAX and export-focused stocks is an anticipated slide in the EUR. In the event of the U.S introducing trade tariffs, demand for EU goods would likely weaken. The downside would partially offset some of the effects of tariffs on demand. A weaker EUR would unlikely to be enough to remove any negative impact, however.

In Summary,

• Upside bias in response to the U.S administration extending the 1^st March trade deadline.
• Upside capped by uncertainty over Brexit and a likely threat of tariffs on EU goods.
• Germany’s manufacturing sector has been in contraction since December, adding to the limited upside near-term.