The German IFO business sentiment report for August is expected to show an improvement to 89.0 from 87.3, which would be the fifth straight monthly improvement and the highest since October, 2008. Optimism is steadily increasing evidenced by the expectations component forecasted to reach 92.0 which would be the highest level for it since June, 2008.
Aug 26 German IFO (AUG) (GMT 08:00: 04:00 EDT)
Expected: 89.0
Previous: 87.3
Fundamental Outlook
The German IFO business sentiment report for August is expected to show an improvement to 89.0 from 87.3, which would be the fifth straight monthly improvement and the highest since October, 2008. Optimism is steadily increasing evidenced by the expectations component forecasted to reach 92.0 which would be the highest level for it since June, 2008. The indicator is a leading indicator for GDP and considering that we saw a 0.3% expansion in the second quarter, markets will look to the release for clues of its sustainability. ECB member Yves Mersch recently remarked that the current recovery in the Euro-zone is being driven by public spending and when the stimulus ends, there could be a significant drop off. He fears that a lack of consumer consumption will discourage private investment and limit future job creation. Therefore, a strong improvement in sentiment would calm those fears and could spark a bullish Euro reaction which would coincide with the technical outlook that is calling for a possible test of 1.5245.
Technical Outlook
The EURUSD is threatening to break higher and test the December 2008 high of 1.4723. A potential target is 1.5245, which is the 78.6% retracement of the decline from above 1.6000. This level intersects with potential trendline resistance at the end of September. Focus remains on the short term advance from 1.4044, which is in 5 waves. It is possible that a correction is complete at 1.4252 (38.2% of the rally) but a larger more complex correction could end below that level - which would expose the 1.4170-1.4200 zone.
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To discuss this report contact John Rivera, Currency Analyst: [email protected]
