EUR/USD: Trading the German IFO Nov 2012

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 expected is bearish for the US dollar.

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

 Published on Friday at 9:00 GMT.

 Indicator Background

Analysts consider the German Ifo Business Climate an excellent barometer of the health and direction of the German economy. As such,  an unexpected reading can affect the movement of EUR/USD.

The index has been on a steady downward trend since April, and  the  previous release  came in at  100.0  points.    The forecast for November calls for a further decline, with an estimate of 99.6. The index has not  dropped below the 100 level since  March 2010, and  a  reading below this line could further undermine confidence in the shaky German economy.

 Sentiments and levels

The  gap between the EU and the IMF  concerning  how to best handle the Greek crisis  remains wide, and Germany may face a tough choice: losing money via debt restructuring (aka OSI) or a disorderly haircut via a Grexit. A release of the next tranche of Greek aid is partially priced in, so there is downside risk here.  Thursday’s  European PMIs were mostly within expectations, but failed to impress, and the euro will likely remain under pressure. In the US, the positive tone from the fiscal cliff negotiations is currently dollar negative, yet there is still a long time until we will see some kind of deal reached. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3080, 1.30, 1.2880, 1.28, 1.2750, 1.2690 and  1.2624.

5 Scenarios

1. Within expectations:  97.0 to 103.0: In such a case, the euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 103.1 to 106.0: An unexpectedly strong  reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above 106.0: The chances of such a scenario are low. A second resistance line might be broken on such an outcome.
4. Below expectations:  94.0 to 96.9: A lower reading than forecast  could push  EUR/USD below one support level.
5. Well below expectations:  Below 94.0:  A sharp decline in the index would likely hurt the euro, and EUR/USD could drop below two or more support lines.

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