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Rally on DAX Index Hinges on Auto Tariffs

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After reaching two-year highs on Thursday, the DAX index retraced some of its gains in Friday’s trading on concerns surrounding the US-China trade deal. Will this dampen the rally on equities?

Earlier last week, reports that the US would roll back its tariffs on Chinese goods sparked risk appetite which caused major stock indices all over the world to reach historic highs. The Dax Index jumped to its two-year highs on Thursday at 13,302.21 before closing the week at 13,228.56.

Conflicting statements regarding the US-China trade deal pushed the DAX index lower on Friday. Initial reports said that the US would implement a rollback to its tariffs on Chinese goods. However, on Friday, US President Donald Trump warned that he did not agree to any deal.

On the economic front, Germany’s trade balance also missed forecasts by 100 million EUR at 19.2 billion EUR which may have contributed to the decline on the DAX.

We could see a lot of volatility on the index this week. November 14 was set as the deadline for the auto tariff investigation of the US on the European Union. US President Donald Trump has previously threatened to impose a 25% levy on foreign cars which would add 10,000 EUR more to the retail price of European cars. Some analysts are optimistic that the Trump administration will not push through with the threat based on comments by some key officials. Among them is European Commission Jean-Claude Juncker who has said that “there will not be any automobile tariffs” on November 14.

If this turns out to be the case, we could see the DAX rally into new yearly highs and test resistance above 13,592.50 as the news would remove uncertainty for Germany. On the other hand, if Trump makes good on his threat, we could see the DAX index correct to 12,475.50 where it established highs in September 2019.