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Euro Shrugs off Ifo Data as Traders Wait for Draghi to Speak

Euro Shrugs off Ifo Data as Traders Wait for Draghi to Speak

Martin Essex, MSTA, Analyst

Talking Points

- The business climate in Germany was marginally poorer in August, according to the country’s Ifo Institute.

- However, there was little impact on the Euro as traders wait for European Central Bank President Mario Draghi to speak at the Jackson Hole economic symposium later Friday.

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In the appetizer before the main course, Germany’s Ifo Institute reported Friday that the business climate in Germany weakened marginally in August, as expected, leaving Euro traders free to concentrate on the speech by European Central Bank President Mario Draghi in Jackson Hole, Wyoming later in the day.

Despite the fall in the Ifo index, from an all-time high in July, business sentiment in Europe’s largest economy remains buoyant, with domestic demand still strong and little impact so far on exports from the strength of the Euro.

There was therefore little movement in EUR/USD after the data, which highlight the balancing act Draghi will have to perform as he juggles a strong Euro-Zone economy against below-target inflation. He is not expected to give any clues on the timing of a reduction in monetary stimulus at Jackson Hole but it is still possible that a say-nothing speech could weaken the Euro modestly. By contrast, if he unexpectedly paves the way for tighter policy, the Euro could move sharply higher.

Reducing the ECB’s asset-purchase program is widely predicted to be discussed at the September/October meetings of the central bank’s Governing Council, paving the way for action early in the New Year. A start-date for so-called policy “tapering” would be the key announcement, while any comments by Draghi expressing concerns about the Euro’s strength on Euro-Zone exports could also be market-moving.

Following the Ifo data, EUR/USD was stable, having fallen a little earlier as European trading began.

Chart: EUR/USD Five-Minute Timeframe (August 25, 2017)

Euro Shrugs off Ifo Data as Traders Wait for Draghi to Speak

Chart by IG

The headline Ifo business climate index slipped to 115.9 in August from 116.0 in July but beat the forecast 115.5. The institute’s current conditions index eased to 124.6 from a revised 125.5 while its expectations index climbed to 107.9 from 107.3.

According to Ifo: "Sentiment among German businesses remains very strong. The decline was due to slightly less positive assessments of the current business situation. Companies’ short-term business outlook, by contrast, improved. Germany’s economy remains on track for growth."

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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