When is the German IFO Survey and how it could affect EUR/USD?
The Germany IFO Survey Overview
Germany’s IFO institute will publish its business survey for August on Monday at 0800 GMT. The headline IFO Business Climate Index is expected to stay unchanged at 88.6 this month.
Meanwhile, the Current Assessment sub-index is set to tick a tad higher to 86.7 in August from July’s 86.5.
The IFO Expectations Index, which firms’ projections for the next six months, is likely to decline to 90.2 in the reported month, as against a 90.7 figure printed in July.
How could the German IFO Survey affect EUR/USD?
EUR/USD is consolidating its pullback from three-week highs of 1.1743 in the lead up to the German IFO Survey. The pair pares previous gains as the US Dollar finds its feet, following Friday’s steep sell-off induced by US Federal Reserve (Fed) Chairman Jerome Powell’s dovish pivot during his appearance at the Jackson Hole Symposium.
An unexpected pick up in the German business morale could lift the Euro (EUR), reviving the EUR/USD uptrend, with the immediate resistance seen at three-week highs of 1.1743. The July 24 high of 1.1789 will be the next upside barrier en route to the 1.1800 level. To the downside, the 50-day Simple Moving Average (SMA) at 1.1651 will offer some comfort to buyers, below which the 1.1600 psychological level could be tested. Further down, the August 22 low of 1.1583 will be on the sellers’ radars.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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