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EUR/USD- Trading the German IFO Business Confidence Survey

EUR/USD- Trading the German IFO Business Confidence Survey

2013-03-22 04:00:00
David Song, Strategist
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Trading the News: German IFO - Expectations

What’s Expected:

Time of release: 03/22/2013 9:00 GMT, 5:00 EDT

Primary Pair Impact: EURUSD

Expected: 105.0

Previous: 104.6

DailyFX Forecast: 103.0 – 105.0

Why Is This Event Important:

The IFO confidence survey is expected to show the gauge for future expectations increasing to 105.0 in March, which would mark the highest reading since July 2011, and the ongoing improvement in business sentiment may increase the appeal of the Euro as raises the outlook for growth. However, as the European Central Bank (ECB) holds a cautious outlook for the region, fears of a deepening recession may drag on business confidence, and we may see the Governing Council continue to carry out its easing cycle throughout 2013 in an effort to encourage a sustainable recovery.

Recent Economic Developments

The Upside

Release

Expected

Actual

Producer Prices (YoY) (FEB)

1.5%

1.2%

Labor Costs w.d.a. (YoY) (4Q)

--

2.9%

Import Price Index (YoY) (JAN)

-0.4%

-0.8%

The Downside

Release

Expected

Actual

Trade Balance (JAN)

13.9B

13.7B

Factory Orders s.a. (JAN)

0.6%

-1.9%

Unemployment Rate s.a. (FEB)

6.8%

6.9%

Easing input costs may help to prop up business sentiment in Europe’s largest economy, and a positive development may instill an improved outlook for the single currency as it dampens expectations for additional monetary support. However, slowing demands along with weakening trade conditions may sap business confidence, and a dismal print may dampen the appeal of the Euro as it raises the scope of seeing another rate cut from the ECB.

Potential Price Targets For The Rate Decision

Forex_EURUSD-_Trading_the_German_IFO_Business_Confidence_Survey_body_ScreenShot094.png, EUR/USD- Trading the German IFO Business Confidence Survey

As the EURUSD fails to put in a close below the 200-Day SMA (1.2867), a positive development may trigger a run at the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120, and the rebound from 1.2842 may turn into a larger reversal as market participants scale back bets for additional monetary support. However, as the key figure appears to be holding up as resistance, a dismal confidence survey may push the exchange rate back below the moving average, and we will look for a move back towards the 23.6% Fib (1.2640-50) as the euro-area faces a deepening recession.

How To Trade This Event Risk

Expectations for another uptick in business confidence fosters a bullish outlook the single currency, and a positive development may set the stage for a long Euro trade as it raises the prospects for growth. Therefore, if the gauge for future expectations advances to 105.0 or higher in March, we will need to see a green, five-minute candle following the release to establish a buy entry on two-lots of EURUSD. Once these conditions are met, we will place the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade hits its mark in an effort to protect our gains.

On the other hand, fears of a deepening recession may weigh on business sentiment, and a dismal print may trigger a bearish reaction in the single currency as it fuels expectations for a rate cut. As a result, if the gauge for future expectations fall short of market forecast, we will implement the same strategy for a short euro-dollar trade as the long position mentioned above, just in the opposite direction.

Impact that the German IFO survey has had on EUR during the previous month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

FEB 2013

02/22/2013 9:00 GMT

101.4

104.6

-15

-32

February 2013 German IFO - Expectations

Forex_EURUSD-_Trading_the_German_IFO_Business_Confidence_Survey_body_ScreenShot093.png, EUR/USD- Trading the German IFO Business Confidence Survey

Business confidence in Germany improved during February, with the IFO survey advancing to 107.4 amid forecasts for a 104.9 print, while the gauge for future expectations advanced to 104.6 to mark the highest reading since July 2011. Although the initial reaction pushed the EURUSD above the 1.3240 figure, the single currency struggled to hold its ground during the North American trade, with the pair ending the day at 1.3185.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link.

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