DAX Gains On Trade Deal Despite Gloomy Manufacturing PMI

Dax has jumped 0.5% higher out of the blocks this morning with traders in a cautious optimistic mood as they await further details on the US – China trade deal.

Dax has jumped 0.5% higher out of the blocks this morning with traders in a cautious optimistic mood as they await further details on the US – China trade deal.

Forex chart

The announcement of the highly anticipated phase one trade deal and the suspension of additional tariffs due to be applied from today is boosting risk appetite, overshadowing weak PMI data from Europe's largest economy.

Whilst the details of the trade deal have been sparse, the fact that the two sides have finally agreed to something after years of wrangling means that a key risk is easing, lifting sentiment.

Weak Manufacturing PMI

For Germany, an exporter nation which has been caught up in the ongoing trade dispute, news of a deal couldn’t come soon enough. Manufacturing PMI data highlighted the negative impact that the dispute is having on the private sector. German manufacturing PMI declined to 43.4 in December, down from 44.1. The weaker reading came as somewhat of a surprise as recent surveys had indicated that the downturn in Germany was moderating. Instead, a continued contraction in the manufacturing sector across the final quarter indicates that it would be premature to discard German recession concerns quite yet.

The German PMI readings weren’t all doom and gloom with the service sector continuing to show resilience, suggesting that contagion has been minimal so far. However, with employment growth showing signs of slowing questions are rising as to whether the service sector can continue supporting such a deep correction in the manufacturing sector.

Looking ahead investors will continued digesting any details that may arise regarding the trade deal. This still has the biggest potential to move the market.

Levels to watch:

After rebounding off its 50 SMA last week, the Dax has risen strongly. It trades above its 50, 100 and 200 sma with a strong bullish momentum. On the upside the price will look to overcome 13450 before heading towards resistance at 13600. Immediate support can be seen at 13300, prior to 13230 and 13050.

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