DAX futures set to trade flat ahead of crucial EU Summit to agree Covid-19 recovery fund

DAX futures are trading marginally higher ahead of the EU summit, reflecting investors wait and see approach to European stocks as leaders face myriad of obstacles to crucial Covid-19 recovery fund.

EU leaders have started to arrive in Brussels to negotiate the terms of Europe’s €750 billion pandemic recovery fund this weekend, with the German chancellor Angela Merkel admitting that the deal faces a lot of hurdles due to major divisions between member states.

‘The differences are still very large and so I can’t predict that we will achieve a result this time. It would be desirable, but we also have to be realistic,’ Merkel said as she entered the summit earlier on Friday.

The German Chancellor went on to say that she hopes her European counterparts will show ‘willingness to compromise on the part of everyone so that we achieve something that is good for Europe’.

But even with all the good will in the world there is increasing pessimism among investors that EU leaders will be able to strike a deal this weekend, with northern member states, which have weathered the crisis better than their southern counterparts, wishing to reduce the overall size of the fund.

If EU leaders can strike a deal this weekend the German DAX and other major European indices will likely open higher on Monday. However, the chances of EU leaders striking a deal this weekend appear slim, with many expecting another summit to take place in Brussels before the end of July.

The DAX closed marginally higher (0.35%) on Friday at 12,919 points, with the index down 3% year-to-date after German stocks continue to recovery from the Covid-19 crisis in impressive fashion, with the blue-chip index rallying 53% since hitting low of 8441 in mid-March.

DAX: Technical Analysis

Technically the DAX is at an interesting point and traders will be standing by, over the weekend, to push it past recent resistance if word from the EU Summit proves good for indices.

The recent ceiling of 12,938 is the line to watch. That was the intraday high point, reached twice, over Monday 8 and Tuesday 9 June. There was a brief intraday high, past that point, on Wednesday this week but it did not hold, according to Jeremy Naylor, market analyst and presenter at IG.

‘If we get a candle break, along with a candle close, above that point of resistance, then there is not much stopping the index then on to the record highs seen in February of 13,830,’ he said.

‘Over the last three days of this week, leading into the EU Summit, the candle shapes are interesting, in that there has been very little movement,’ Naylor added.

‘This indicates that traders are waiting and looking for an opportunity to pounce. Could this weekend provide the fundamentals for the technicians to move?’

DAX edges higher to close out the week

Admittedly, it has yet to push through the higher high from Wednesday’s session, but it continues to cling on above the 50-hour simple moving average (SMA) of 12,884, according to Chris Beauchamp, chief market analyst at IG.

‘If the price clears 13,000 then it will form a new higher high, while a deeper pullback could see the 200-hour SMA at 12,701 tested once more,’ he added.

How to trade the DAX this weekend

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Whether you want to go long (buy) or short (sell) the DAX based on the above outlook, you don’t have to wait until the markets reopen on Monday to trade.

The weekend prices for indices and forex are quoted separately to their weekday counterparts, based on our view of the prospects for that market given client business and news flow. As a result, you can use these markets to hedge against risk on your weekday positions.

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