Article by ForexTime

The EUR/USD is trading higher following the better than expected climb in the German IFO business expectations survey. This was a relief as last week’s flash November PMI data reflected downside risk to the IFO report. The currency pair rebounded moving above 1.24 after hitting a 3-week lows during the Asian trading session.

November German IFO business sentiment survey beat expectations, unexpectedly lifting to 104.7 in the headline reading, above the consensus forecast for 103.00 and up from 103.2 in the previous month. This breaks a run of six straight declines. The rise reflects marked improvements in both expectations and current condition indicators, with the expectations reading jumping to 99.7 from 98.3 and the current conditions indicator rising to 110.0 from 98.3.

The IFO diffusion index, which gives the balance of positive and negative answers moved back into positive territory and showed improvement in sentiment across all sectors, but most notably in wholesale trade sentiment, although the manufacturing reading also improved, which provides a counterbalance to the disappointing manufacturing PMI reading for November. The improvement in the IFO, which is broader based than the manufacturing PMI, will take some pressure off the ECB to implement further easing already in December.

Later this week, HICP inflation is expected to remain at just 0.7% year over year in Germany and 0.4% year over year in the Eurozone. Base effects from energy prices continue to play a role, but at 0.7% year over year core inflation is also considerably below the ECB’s definition of price stability and Draghi stressed Friday that the central bank will have to work to bring inflation back to target as soon as possible.

The EUR/USD tested the trend lows at 1.2360, while momentum turned negative.  Resistance is seen near 1.26. The MACD (moving average convergence divergence) index is poised to generate a sell signal.  This is now pointing to lower prices for the currency pair.

Article by ForexTime

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