Trading the News: German IFO Business Climate
Updates to Germany’s IFO Business Climate survey may rattle the recent rally in EURUSD as the index is expected to narrow for the third consecutive month in June.
A print of 97.5 or lower may produce headwinds for the Euro as it dampens the outlook for growth and puts pressure on the European Central Bank (ECB) to further insulate the monetary union.
In turn the, the ECB may show a greater willingness to implement a negative interest rate policy (NIRP) for the Main Refinance Rate, its flagship benchmark for borrowing costs, as President Mario Draghi insists that “further cuts in policy interest rates and mitigating measures to contain any side effects remain part of our tools.”
However, a positive development may keep the ECB on the sidelines, and the Governing Council may largely endorse a wait-and-see approach at the next meeting on July 25 as the central bank prepares to launch another round of Targeted Long-Term Refinance Operations (TLTRO) in September.
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Impact that the IFO Business Climate survey had on EUR/USD during the last release
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
MAY 2019 | 05/23/2019 08:00:00 GMT | 99.1 | 97.9 | -5 | +41 |
May 2019 German IFO Business Climate
EUR/USD 5-Minute Chart
Germany’s IFO Business Climate survey narrowed more-than-expected in May, with the index slipping to 97.9 from 99.2 the month prior. A deeper look at the report showed the gauge for current conditions also falling to 100.6 from a revised 103.4 in April, while the index for future expectations unexpectedly held steady at 95.3 amid projections for a 95.0 print.
The Euro struggled to hold its ground following the mixed data prints, but the market reaction was short-lived, with EURUSD bouncing back during the North American session to close the day at 1.1182. Learn more with the DailyFX Advanced Guide for Trading the News.
EUR/USD Rate Daily Chart
- Keep in mind, the broader outlook for EURUSD is no longer tilted to the downside as both price and the Relative Strength Index (RSI) break out of the bearish formations from earlier this year.
- With that said, EURUSD stands at risk for a larger correction as the exchange rate clears the April-high (1.1324) after failing to test the 1.1000 (78.6% expansion) handle.
- The break/close above 1.1340 (38.2% expansion) brings the 1.1390 (61.8% retracement) to 1.1400 (50% expansion) region on the radar as the exchange rate extends the series of higher highs and lows from the previous week, with the next region of interest coming in around 1.1430 (23.6% expansion) to 1.1450 (50% expansion).
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--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong.
