EUR/USD: Trading the German IFO Feb 2013

The 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 market forecast is bullish for the euro.

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

Published on Friday at 9:00 GMT.

Indicator Background

The German Ifo Business Climate, a leading economic indicator, acts as an excellent barometer of current and future economic conditions. The indicator should be treated as a potential market-mover, as an unexpected reading can affect the direction of the EUR/USD.

The index has been on a steady upward move since November, and climbed to 104.2 points in the previous release. The markets are anticipating a slight improvement in the upcoming  reading, with an estimate of 104.9 points.

Sentiments and levels

 The high-flying euro hit some turbulence, as  GDP figures out of the Eurozone were even worse than the low expectations. These weak releases  underscore that the  Eurozone economy is struggling,  and we may not see any improvement soon, despite Mario Draghi’s optimism that the economy will improve soon.  In addition, the upcoming week is a run up towards the Italian elections. Fears of Berlusconi’s comeback will likely haunt the euro. In the US, we did not see any big breakthrough, but the drop in jobless claims and the rise in retail sales and consumer sentiment  points to a US recovery headed in the right direction. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3360, 1.3290, 1.3255, 1.3170, 1.3130 and 1.3110.

5 Scenarios

1. Within expectations: 102.0 to 108.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 108.0 to 111.0: An unexpected higher reading can send EUR/USD above one resistance line.
3. Well above expectations: Above 111.0: The chances of such a scenario are low. A second resistance line might be broken on such an outcome.
4. Below expectations:  99.0 to 101.9: A lower reading than forecast  could push the pair below one support level.
5. Well below expectations: Under 99.0: In this scenario, EUR/USD could drop  below two or more support lines.

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