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 the performance of the German economy in 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 Wednesday at 8:00 GMT.
Indicator Background
The German Ifo Business Climate is highly respected and a key economic indicator. As such, its release often has an impact on the direction of EUR/USD, and traders should pay close attention to this monthly release.
The index has been slipping slightly in the past few months. The June reading came in at 105.3 points, and the forecast for July is another dip, to 104.8 points. Given the host of weak German data recently, another drop this month will raise more concerns about the German economy and could hurt the euro.
Sentiments and levels
Everything seems to be going against the euro. When pro-euro Angela Merkel openly questioned the success of the European project, many eyebrows were raised, in addition to the already mounting pressure coming from Spain. There is again talk of a Grexit, and the ecnomic situation in Spain continues to deteriorate – the bailout could end up “too little too late”. In the US, Bernanke again dashed hopes of QE3, which would have pushed the dollar lower. Thus, the overall sentiment is bearish on EUR/USD towards this release.
Technical levels, from top to bottom: 1.2288, 1.22, 1.2144, 1.20, 1.1876 and 1.17.
5 Scenarios
- Within expectations: 103.0 to 107.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
- Above expectations: 107.1 to 109.0: An unexpected higher reading can send EUR/USD well above one resistance line.
- Well above expectations: Above 109.0: Given the performance of the German economy, the chances of such a scenario are low. A second resistance line might be broken on such an outcome.
- Below expectations: 100.0 to 102.9 A lower reading than forecast may push the pair below one support level.
- Well below expectations: Under 100.0: A drop below the critical 100 point level would alarm the markets, and EUR/USD could break two or more support levels.
For more on the Euro, see the EUR/USD.