The price action set up in the German DAX over the last week suggests that the markets are preparing for another Merkel victory. Political developments in Germany so far show that there is no strong opposition to the incumbent candidate.

Although the Social Democratic Party of Germany (SPD) led by Martin Schultz did manage to emerge a contender to the election race, it is quite clear that Angela Merkel has managed to lead by a significant distance.

Opinion polls show support for SPD is falling

Latest opinion polls from the DeutschlandTrend polls showed the CDU/CSU leading at 37% while the SPD was seen lagging behind at 21%. While support for the CDU/CSU was largely unchanged, the SPD fell by 2 percent since the previous poll.

Data from DW showed over the weekend that support for the SPD dropped especially after the recently held election debate that was telecast live on TV.

Despite the CDU/CSU lead, some other pollsters cautioned that only half the electorate had already decided and the remainder could potentially alter the outcome. As far as leadership goes, Angela Merkel is clearly in the lead although she was seen faring poorly when it came to the question of being in touch with the electorate's problems.

ECB remains on the sideline

After last week's ECB monetary policy meeting, the decision to put off the question on tapering was pushed into October. This was somewhat expected as the ECB prefers to wait for the outcome of the German elections before making any important policy decisions.

Considering that Germany has a strong influence and the fact that German officials have expressed their views that the ECB take a more normalized view on monetary policy, the ECB has managed to play that card very well.

Last week's ECB monetary policy meeting has helped to bring some clarity to the German DAX index. The main benchmark index will be the most vulnerable to the German elections.

German DAX aims for 12669

As previously forecast, the German DAX fell to the technical support level at 11962 - 11895. The DAX pushed lower on August 29 to test the support zone slightly below 11926 before reversing strongly off this level.

The retest of the 11926 level also suggests a double bottom that has formed at this support level. By Friday's close, the DAX settled at the upper end of the range at 12303. While a near term pullback could be anticipated, a breakout above 12303 is likely to occur. Clearing this resistance level will put the German DAX to the upside as price action will be testing the 12948 highs previously formed in late June.

German DAX (12301.5): Double bottom pattern breakout

However, ahead of 12948, the double bottom pattern suggests a minimum upside to 12669 level where resistance could be formed ahead of further gains.

With still two weeks to go into the German elections, the bias in the German DAX shows that investors are expecting Ms. Merkel to win another term. The downside risks are also capped at the support level of 11962 - 11895.

This means that the DAX could remain flat after the current double bottom pattern is validated by the upside breakout. The new range of 12669 and 12303 could be established following which, a breakout could occur coinciding with the German election results.

Alternately, in the event that the DAX struggles to clear the 12303 resistance level, we could expect the index to remain supported at the 11962 – 11895 support zone. Only a break down below this level will change the bias to the downside. This bearish view could see the DAX falling to the 61.8% Fibonacci level of 11134.