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If you want to translate from German to English you need German-English dictionary, not English-German dictionary. But let's assume that is in fact what you have.
The basic Kindle (sometimes referred to as 'K4') has different default dictionaries for each of the supported languages. So one is used for English texts, another for German and so on. You only need to select a default when more than one dictionary for a given language exists. The German-English translation dictionary should show up as the dictionary used for German, unless you have other German dictionaries available.
This depends, however, on having the language metadata set correctly for the text you are reading. If the language is not set, then it will use the default dictionary for the UI language, in your case, English. To determine what the metadata language setting is and change it, you'll need a tool such as calibre. Language can be set for mobi and PDf. Text files don't have any way to set this.
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