Strong USD & EUR Under Pressure Ahead of German Ifo

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After a wild move for the US Dollar yesterday, following positive economic releases, in addition to the Federal Reserve FOMC Meeting Minutes which increased the estimates for a possible rate hike in December meeting, the markets will take some rest during the US session, as the US banks will be closed in observance of Thanksgiving Day.

However, all eyes will be toward the upcoming European session today as we wait for one of the most important economic release for Germany, including the German Ifo Business Climate and the Gfk Consumer Confidence Index, which set to have a notable impact on the market. In today’s article, we will take a look at the expectations, scenarios and the possible impact on the markets

Definitions

Ifo Business Climate: This index measures the level of a composite index based on surveyed manufacturers, builders, wholesalers, and retailers. This survey is highly respected due to its large sample size and historical correlation with German and wider Eurozone economic conditions. It tends to create a hefty market impact upon release. Source changed series from a base year of 2000 to a base year of 2005 as of May 2011.

GfK Consumer Confidence: This index measures the level of a composite index based on surveyed consumers. Survey of about 2,000 consumers which asks respondents to rate the relative level of past and future economic conditions, including personal financial situation, the climate for major purchases, and overall economic situation.

Why This Is Important?

Ifo Business Climate: It’s a leading indicator of economic health – businesses react quickly to market conditions, and changes in their sentiment can be an early signal of future economic activity such as spending, hiring, and investment.

GfK Consumer Confidence: Financial confidence is a leading indicator of consumer spending, which accounts for a majority of overall economic activity.

Expectations

Indicator

Forecast

Prior

Ifo Business Climate

110.6

110.5

Ifo Current Conditions

115.0

115.0

Ifo Expectations

106.0

106.1

Gfk Consumer Confidence

9.8

9.7

What Matters The Most?

Most of the websites offer only the first index, which is the IFO Business Climate. As noted in the definitions above, it’s a composite index, therefore, traders need to look at the components, such as the current conditions and most importantly the future expectations, given the fact that markets always price in the future in advance.

Today’s expectations seem to be slightly mixed. The Business Climate may tick higher; Current Conditions set to remain stable, while the Expectations index may decline slightly. There is a high probability for a surprise, which likely to have a notable impact on the markets. What matter’s the most for traders today is the level of the surprise, whether if its positive or negative.

Strong USD

Despite the upcoming economic releases from Germany today, traders should keep in mind that yesterday’s FOMC meeting minutes is expected to be reflected in Europe today, which means that strong USD is highly possible. Even if the figures comes with a positive surprise, I suspect a short term reaction in favor of the Euro, while stronger USD and the expectations for a possible rate hike in December is likely to overshadow any upcoming data.

Levels To Watch

Symbol

S3

S2 S1 Pivot R1 R2

R3

EURUSD

1.0381

1.0452 1.0505 1.0576 1.0629 1.0700

1.0753

EURJPY

116.54

117.09 117.91 118.46 119.28 119.83

120.65

EURGBP

0.8293

0.8375 0.8431 0.8513 0.8569 0.8651

0.8707

EURCHF

1.0633

1.0667 1.0700 1.0734 1.0767 1.0801

1.0834

EURCAD

1.4044

1.4111 1.4174 1.4241 1.4304 1.4371

1.4434

EURAUD

1.4062

1.4143 1.4217 1.4298 1.4372 1.4453

1.4527

EURNZD

1.4910

1.4957 1.5002 1.5049 1.5094 1.5141

1.5186

BTCEUR

693.61

696.81 701.69 704.88 709.76 712.95

717.83

 

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