THE TAKEAWAY: The Euro is likely to look beyond German IFO business confidence data as forex traders’ focus remains on the outcome of increasingly tense EU budget negotiations.
What’s coming out and when?
November’s German IFO Business Climate figures are due to cross the wires at 9AM GMT. Economists’ forecasts point to further deterioration, with the headline Business Climate Index expected to hit the lowest level since January 2010 at 99.5. That would mark the seventh consecutive month of eroding sentiment. The coincident Current Assessment and forward-looking Expectations sub-indexes are seen falling further to 106.3 and 93.0 respectively.
What does this mean for markets?
The business confidence report may see a more muted reaction than normal this time around as forex traders continue to focus on the ongoing EU budget talks. The regional bloc’s leaders have been negotiating the terms of the 2014-2020 budget since Thursday, with signs of deadlock emerging as German and British officials call for spending cuts France attempts to defend funding for agricultural subsidies.
Needless to say, the EU is a key source of funding for bailouts of the so-called “PIIGS” nations, making a successful budget agreement a requirement for Eurozone debt crisis containment efforts. With that in mind, continued dithering has scope to fuel negative market sentiment and boost haven demand for the US Dollar, driving the benchmark currency higher against most of its top counterparts (with the Japanese Yen being a notable exception).
What are the charts telling us?
EUR/USD is testing resistance at 1.2898-1.2905 area, with a break higher exposing the 123.6% Fibonacci expansion at 1.2945 as the next upside barrier. Near-term support is seen at a rising trend line established over the past two days, now at 1.2877. A drop below that aims for the 76.4% level at 1.2864.
EUR/USD 1 Hour Chart
Created Using FXCM Marketscope – Prepared by Ilya Spivak