EUR/USD: Trading the German IFO Business Confidence Survey

Daily Forex Fundamentals | Written by DailyFX | Nov 22 08 06:43 GMT |

Trading the News: German IFO - Business Climate What's Expected Time of release: 11/24/2008 09:00 GMT, 04:00 EST Primary Pair Impact : EURUSD Expected: 89.0 Previous: 90.2 Effect the German IFO - Business Climate Survey had over EURUSD for the past 3 months October 2008 German IFO - Business Climate Survey The German IFO business confidence survey slipped to a three year low of 92.9 from 94.8 in August as Europe's largest economy teeters on the brink of a recession. Fading demands from around the globe paired with the downturn in the domestic economy has certainly taken a toll on German businesses, and conditions may only get worse as rampant inflation continues to sap purchasing power. Mounting price pressures paired with slowing growth could leave the ECB on the sidelines as they continue to abide by their one and only mandate to ensure price stability, but increased concerns of a recession could push the central bank to lower the benchmark interest before the end of the year. September 2008 German IFO - Business Climate Survey The German IFO business confidence survey slipped to a three year low of 92.9 from 94.8 in August as Europe's largest economy teeters on the brink of a recession. Fading demands from around the globe paired with the downturn in the domestic economy has certainly taken a toll on German businesses, and conditions may only get worse as rampant inflation continues to sap purchasing power. Mounting price pressures paired with slowing growth could leave the ECB on the sidelines as they continue to abide by their one and only mandate to ensure price stability, but increased concerns of a recession could push the central bank to lower the benchmark interest before the end of the year. August 2008 German IFO - Business Climate Survey German business confidence fell to a three year low of 94.8 from 97.5 in July, fueling recessionary concerns for Europe's largest economy. Meanwhile, business expectations slipped to a 15 year low of 87.0, which suggests that conditions may only get worse as firms face rising input costs amid fading demands. Economic activity contracted in the second quarter for the first time in almost four years, and may remain subdued for the rest of the year as upward price pressures continues to sap purchasing power. Record high inflation has led the ECB to hold a hawkish bias going forward, but the central bank could be forced to push inflationary concerns to the backburner as Germany is on the brink of a recession. How To Trade This Event Risk Mounting growth fears for Europe's largest economy is expected to weigh on businesses as economists expect the German IFO confidence survey to fall to 89.0 from a five-year low of 90.2 in September. The preliminary GDP reading for the third quarter showed that the economy slipped into a technical recession as economic activity contracted 0.5%, which was followed by a 0.4% decline in the second quarter, and conditions may only get worse as demands from home and abroad deteriorate. Retail spending in September fell 2.3% from the previous month despite expectations for a 1.0% decline, which suggests that economic activity is slowing at an even faster pace throughout the second half of the year. In addition, factory orders slid 8.0% during the same period, which was much greater than the 2.3% decline projected by economists. Moreover, The advanced services PMI reading contracted for the second consecutive month in November as the index slipped to 46.2 from 48.3 in the previous month. Meanwhile, manufacturing activity declined for the fourth straight month as the PMI reading slipped to 36.7 from 42.9. The breakdown of the report showed that new orders plunged to 30.9 from 39.2, while the employment component slipped to 44.3 from 47.1. The data suggests that Europe's largest economic activity may contract even further in the fourth quarter, and conditions may only get worse over the coming months as firms continue to cutback on investments. The dour outlook for Germany has certainly raised expectations that the European Central Bank will ease policy further at the December 4th policy meeting, which could stoke increased selling pressures for the euro over the near-term. As the growth outlook for Germany turns increasingly bleak, we would need a significant recovery in the IFO survey to yield a bullish euro trade for the scheduled event risk. Therefore, a confidence reading above 95.0 will set the stage for a long EURUSD trade, and we will look for a green, five-minute candle following the improved release to confirm an entry on two lots of the euro-dollar. We will place our initial stop at the nearby swing low (or reasonable distance), and this level of risk will determine the target for the first lot. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target. On the other hand, fading export demands paired with fears of a global recession may lead firms to lower their growth forecasts, which would stoke increased selling pressures for the euro. As a result, an inline print or a confidence reading below 89.0 would favor a short trade for the EURUSD, and we will follow the same setup as the long trade mentioned above, just in reverse. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. 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