EUR/USD: Trading the German IFO May 2014

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 Friday at 8:00 GMT.

Indicator Background

Ifo Business Climate, a leading economic indicator,  is as an excellent barometer of current and future economic conditions. As a market-mover, analysts pay close attention to the monthly releases of the index.

The index  continues to  look strong and rose slightly to 111.2 points in March. This beat the estimate of 110.5 points. The markets are expecting more of the same, with the estimate for the upcoming release standing at 111.0 points.

Sentiments and levels

The ECB continues to try to grapple with low growth, weak inflation and a high-flying currency. Mario Draghi has talked tough and not followed up in the past, but the markets have a sense that come June the ECB might press the trigger. In addition, there are  good reasons to act, with the recovery looking more fragile than beforehand, even in Germany. In the US, the lower yields weigh on the greenback, but  economic growth and stronger inflation  are keeping the QE taper train on track, so we could see the Fed wind up the asset purchase scheme by the end of the year. All in all, a second attempt to break below uptrend support has better chances of succeeding now.  So, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3785, 1.3740, 1.37, 1.3650, 1.3560 and  1.3515.

5 Scenarios

1. Within expectations: 108.0 to 114.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 114.1 to 117.0: An unexpected higher reading can send EUR/USD well 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: 105.0 to 107.9: A lower reading than forecast may push the pair below one support level.
5. Well below expectations: Under 105.0: 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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