EUR/USD: Trading the German IFO Nov 2011

The German Ifo Business Climate is a monthly composite index of about 7,000 businesses, which are surveyed on current business conditions and their expectations concerning economic performance over the next six months.

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

Published on  Thursday 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. As a market-mover, analysts and traders pay close attention to the monthly releases of the index.

The index has been on a steady downward trend since June. The October reading of 106.4 was almost identical to the market forecast of 106.3. The prediction for November is a further drop to 105.5. Will the index surprise the markets and buck the downward trend?

Sentiments and levels

The lingering pessimism reflected in the German Ifo Business Climate Index is a matter of great concern. It signals a lack of confidence in the German economy, at a time when the Euro Zone is in deep economic trouble. This pessimism is echoed by figures indication weak consumer confidence in the economy.

On a positive note, there are indications of slight improvement in the German economy, such as stronger GDP figures.   Thus, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3725, 1.3650, 1.3550, 1.3480, 1.3420, 1.3360 and 1.3250.

5 Scenarios

1. Within expectations: 104.9 to 106.1: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 106.2 to 107.0: An unexpected higher reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above 107.0: The chances of such a scenario are low. A second resistance line might be broken on such an outcome.
4. Below expectations: 104.2 to 104.8: A lower reading than forecast may push the pair below one support level.
5. Well below expectations: Under 104.2: Due to the turmoil in the Euro Zone, a sharp decline cannot be ruled out. In this scenario, EUR/USD can drop below two or more support lines.

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