Market Drivers for September 24 2014

IFO hits a 17 month low

New Zealand Trade Balance improves

Nikkei -0.24% Europe -0.02%

Oil $91/bbl

Gold $1223/oz.

Europe and Asia:

NZD Trade Balance -472M vs. -1125M

EUR IFO 104.7 vs. 105.9

North America:

USD Existing Home Sales 10:00

The German IFO survey of business sentiment hit 17 month lows today putting fresh selling pressure on the EUR/USD but despite the big miss on in the headline numbers the price reaction in the pair was only modest as the currency remains grossly oversold.

The IFO report printed at 104.7 versus 105.9 a full 1.2 points worse than forecast and more than 1.5 points lower than the month prior. All the gauges were lower with current assessment dropping to 110.5 from 111.1 the month prior while expectations dropped sharply to 99.3 from 101.70.

“The German economy is no longer running smoothly,” Ifo said, but added that it still expected gross domestic product (GDP) to grow in 2014.

The latest data from the EZ this week including yesterday’s Flash PMI and today’s IFO readings suggests that the region remains just above the expansionary level with growth running somewhere in the 0.1% to 0.3% range. While this growth is anemic at best it is nevertheless positive and therefore provides the ECB with more time before it commits to a massive stimulus policy.

That’s why the reaction in the EUR/USD has been muted so far as traders remain uncertain whether the ECB will unleash a large QE program anytime soon. With euro having dropped more than 1000 points off its yearly highs much of the bad news has been priced into the pair and further downside moves are meeting stiffer resistance especially around the 1.2800 area which has acted as support for the past several days.

Still the economic data from the EZ continues to be weak and sentiment against the unit remains negative but further selling may have to come from better US data as the gulf in economic performance between EZ and US continues to widen.

Today the only report of note will be New Home sales which are expected to rise to 432K from 412K the month prior. If the release can meet or beat forecasts it could provide the final push to send EUR/USD towards the key 1.2800 level as the day proceeds.

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