EUR/USD: Trading the German IFO Dec 2013

German Ifo Business Climate is a monthly composite index of about 7,000 businesses, which are surveyed about current business conditions and their expectations concerning economic performance over the next six months. A reading which is higher than the estimate is bullish for the euro.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Wednesday at 9:00 GMT.

Indicator Background

The index has looked strong in recent readings, and last month’s reading  jumped to  109.3 points, surpassing the estimate of 107.9 points. The markets are expecting another solid performance for November, with an estimate of 109.7 points.

Sentiments and levels

The euro continues to trade at high levels, despite weak Eurozone inflation and growth. The markets seem content to focus on those German indicators that have been pointing upwards.

No news proved to be good news for the euro  once again, but with a lower high on the charts, the worries about a strong euro and a sluggish economy,  we could see weakness in the pair.

More importantly, a decision on QE tapering this week could boost the dollar. The dollar is also benefitting from positive job numbers,  fiscal cooperation in Congress  and a  separation of expectations between QE tapering and a rate hike. All culminate to a  perfect setting  for  a  QE taper  that could make the USD the big winner now and in 2014. So, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.4036, 1.3940, 1.3892, 1.3710, 1.3675  and 1.3615.

5 Scenarios

1. Within expectations: 107.0 to 113.0: In such a case, the euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 113.1 to 117.0: An unexpected higher reading can send EUR/USD above one resistance line.
3. Well above expectations: Above 117.0: The chances of such a scenario are low. A second resistance line might be broken on such an outcome.
4. Below expectations: 103.0 to 106.9: A lower reading than forecast may push the pair below one support level.
5. Well below expectations: Under 103.0: In this scenario, EUR/USD could take a hit  and drop below a second support line.

For more on the Euro, see the  EUR/USD forecast.

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