Financial Advisor

EUR/USD: Trading the German Ifo Business Climate

The German Ifo Business Climate is an important and wide survey which serves as an excellent barometer for current and future economic conditions. This makes it a leading indicator of economic health and a major market moving event for EUR/USD.

Indicator Background
The German Ifo Business Climate is an important indicator of the business sector's view of the health of the economy. There is serious concern over the economic slowdown in Germany as will as the debt crisis gripping Europe, with no end in sight. Steep budget cuts and tax hikes in Euro zone countries are stifling growth.
The indicator is currently on a slight downward trend since June. The index dropped from 114.5 in June to a disappointing 112.9 in July, when the forecast was for 113.7. The forecast for August stands at 111.3, which signifies a market expectation that the Euro zone economy continues to be weak.

Sentiments and levels
Growth in the EU zone in Q2 was a dismal 0.2% in Q2.  Under these conditions, investors are unlikely to be attracted to the Euro. So, the overall sentiment is bearish on EUR/USD towards this release.
Technical levels, from top to bottom:  1.4775, 1.4650, 1.4520, 1.4450, 1.4340, 1,4282 and 1.4220.

5 Scenarios
  1. Within expectations: 111.00 to 111.8: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 111.9 to 112.9: An unexpected higher reading can send EUR/USD well above one resistance line.
  3. Well above expectations: Above 113.00: The chances of such a scenario are low. A second resistance line might be broken on such an outcome.
  4. Below expectations: 110.4 to 111.2: A sharper decrease than forecast will probably cause the Euro to shake and slide, but it is unlikely to send it below support.
  5. Well below expectations: Under 110.4: Due to the uncertainties in the Euro zone economy, a sharp decline cannot be ruled out. In this scenario, a drop under support is likely.

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