EUR/USD: Trading the German IFO Apr 2013

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. A reading which is higher than the 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, a leading economic indicator, acts as an excellent barometer of current and future economic conditions. An unexpected reading from this key release can affect the direction of EUR/USD.

The index slipped in the March reading to 1.06.7 points, below the estimate of 107.8 points. The forecast for the April release stands at 106.4 points. Will the index rebound and beat the estimate?

Sentiments and levels

The G20 did not criticize Japan for its comprehensive QE program, but the positive impact on the euro is limited. Europe has a wide range of issues, which are weighing on the euro – from debt crises in Cyprus, Slovenia and Portugal, through a political crisis in Italy (which saw interesting developments over the weekend) and up to weakness in core countries. Although indicators in the US have looked weak recently, the US GDP release will probably be a reminder that the US is enjoying uninterrupted growth while Europe wallows in a recession. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3140, 1.31, 1.3050, 1.30, 1.2960 and 1.2880.

5 Scenarios

1. Within expectations: 104.0 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: 108.1 to 112.0: An unexpected higher reading can send EUR/USD 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: 100.00 to 103.9: A lower reading than forecast could push the pair below one support level.
5. Well below expectations: Under 100.0: A sharp decline would undermine confidence in the euro, and EUR/USD could drop below two or more support lines.

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

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