IFO Snaps the EUR/USD out of Doldrums

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Market Drivers November 24, 2014

GE IFO – 104.7 vs. 103.0
Swiss employment better 4.23M vs. 4.22M
Nikkei -holiday Europe .39%
Oil $76/bbl< Gold $1197/oz.

Europe and Asia:
CHF Employment 4.23M vs. 4.22M
EUR IFO 104.7 vs. 103.0

North America:
USD Flash Services PMI 09:45

The euro recaptured the 1.2400 level in early European trade today after the IFO report exceeded market expectations for the first time since April of this year. The IFO survey of German business sentiment printed at 104.7 versus 103.0 forecast with current assessment numbers rising to 110 from 108 expected while future expectations rose to 99.7 from 98.5.

According to IFO chief economist Klaus Wohlrabe the jump in sentiment was driven by lower euro and lower energy prices which have created a favorable environment for Germany’s export centric businesses. Although he cautioned that it was too early to assume that a turnaround was in play, Mr. Wohlrabe noted that this was the first positive surprise in six months and if sentiment continues to improve in December that should bode well for German growth in H1 of 2015.

It appears that for now the crisis with Russia and Ukraine is having minimal impact on German business as most of the negative effects of the situation have been discounted in the market. The IFO report is the first significant positive piece of German news this month and may provide a modicum of support for the EUR/USD after the pair hit fresh year lows at the start of trade today.

The EUR/USD regained the 1.2400 mark in the aftermath of the release and continued to consolidate at those levels. The key question for the pair going forward however is whether the slight improvement in today’s numbers will delay ECB President Draghi’s efforts to dramatically expand QE in order to stimulate growth across the whole EZ region. The focus now falls squarely to next week’s ECB meeting which could determine if the EUR/USD stabilizes at these levels or moves to fresh lows,

Elsewhere today, EUR/CHF was a touch firmer trading as high as 1.2034 after yet more rhetoric against the Gold referendum vote from SNB President Thomas Jordan and latest polling data that showed support for the measure slipping below 50%. The pair appears to have averted a run on the key 1.2000 floor for now, but still remains at levels too close for comfort for the SNB and speculators continue to watch the price action carefully.

In North American session the only data on the docket is Flash PMI Services report at 14:45 GMT with markets looking for a slight improvement. With holiday week upon us in US trading is likely to remain muted for most of the week as markets prepare themselves for an avalanche of data and rhetoric coming out the week after.

Boris Schlossberg
Managing Director

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