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 his higher than the forecast 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 one of the most important German economic indicators, its release can have a strong impact on the direction of EUR/USD.
The index has looked sharp in recent releases. The July reading of 107.5 points was the highest since March 2012. The markets are expecting the upward trend to continue in the August reading, with an estimate of 108.5 points. Will the indicator match or beat this prediction?
Sentiments and levels
The markets are settling down after the Fed’s no-taper announcement that sent the US dollar broadly lower (see a round up of the event). However, fresh comments show that the vote was a close call and that an “Octaper” could be on its way. The reaction in the euro was somewhat strong.
In the euro-zone, the recovery remains slow and fragile. A stronger euro can hurt this recovery. In Germany, Angela Merkel won a decisive third straight victory, but fell short of a super-majority. So, we are likely to see a period of uncertainty regarding the new government. The leading scenario is for a grand center-right / center-left coalition led by Merkel. This grand coalition could be more pro-European, but not necessarily supportive of a higher euro. We could see the pair retrace now.
Technical levels, from top to bottom: 1.3710, 1.3650, 1.3570, 1.35, 1.3450, and 1.3415.
5 Scenarios
- Within expectations: 105.0 to 111.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
- Above expectations: 111.1 to 115.0: An unexpected higher reading can send EUR/USD above one resistance line.
- Well above expectations: Above 115.0: The chances of such a scenario are low. A second resistance line might be broken on such an outcome.
- Below expectations: 101.0 to 104.9: A lower reading than forecast may push the pair below one support level.
- Well below expectations: Below 101.0: In this scenario, EUR/USD could drop below two support lines.
For more on the Euro, see the EUR/USD forecast.