German IFO survey of business confidence printed lower than forecast at 105.3 versus 105.6 eyed dropping to its lowest level in two years as credit crisis conditions in Europe weighed on corporate sentiment. The latest economic data from the region suggests a material slowdown in economic activity and today’s IFO results reflected the pessimism that has settled over Eurozone’s largest economy.

Yesterday the flash PMI readings for Germany showed that manufacturing contracted to 44.7 from 45.2 – its lowest reading in three years – and today the expectations component of IFO sank to 97.3, also its worst reading in three years.

The euro however saw little reaction to the news remaining within a 10 point range in the aftermath of the release. Although the data was quite weak, the market was bracing for even worse results with much of the negativity already reflected in the pair which has lost more than 150 points over the past 24 hours. With 1.2500 a key support level for the EUR/USD, the pair may stabilize at the current levels for the time being but given the overall negative tone to the data, the pressure to run the stops at that critical figure could build as the day proceeds.

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