EUR/USD: Trading the German IFO Aug 2013

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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 estimate is bullish for the euro.

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

Published on Tuesday at 8:00 GMT.

Indicator Background

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

The index has looked strong in recent readings, and last month’s reading came in at 106.2 points, just shy of the estimate of 106.3 points. The markets are expecting another solid performance in August, with an estimate of 107.1 points.

Sentiments and levels

Another call for a third Greek bailout, this time by the head of the Eurogroup, didn’t move the euro, which remains strong as the markets prefer to look at the positive German data. As well, the emerging markets bond rout due to speculation over QE tapering indirectly supports the euro.

At the same time, we’ve seen the dollar gain broad support has from the growing notion that the Federal Reserve will begin tapering QE as early as September, perhaps by $15 billion. Currently, a “Septaper” is a close call for the Fed and the markets. As August winds up, we could see some more volatility, but no clear choice of direction. So, the overall sentiment is neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3520, 1.3415, 1.3350, 1.33, 1.3240 and 1.3175.

5 Scenarios

  1. Within expectations: 105.0 to 109.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 109.1 to 112.0: An unexpected higher reading can send EUR/USD well above one resistance line.
  3. Well above expectations: Above 112.0: The chances of such a scenario are low. A second resistance line might be broken on such an outcome.
  4. Below expectations: 102.0 to 104.9: A lower reading than forecast may push the pair below one support level.
  5. Well below expectations: Under 104.2: 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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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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