German Business Climate exceed expectations but didn’t help EUR

Germany’s Ifo Business Sentiment Index rose in May to 99.2 from 96.6 a month earlier and growth expectations to 98.2. These are the highest index values in two years, largely due to an improvement in the expectations of German businesses.

The Ifo economic expectations index reached 102.9, surpassing the cyclical highs of 2017 and 2014 to the highest levels since the beginning of 2011. The publication’s commentary notes an acceleration in economic growth. Amongst economic sectors, the most significant progress is noted in trade.

Interestingly, the markets in Europe are now dominated by the opposite movement. Strong Ifo data triggered profit-taking rather than boosting buying. EURUSD was trading above 1.2260 even before the publication, pulling back 20 pips in the first minutes afterwards. The same goes for the DAX30 index, which made new highs just after the disappointing final GDP figures for the first quarter but went down on the optimism of the business indicator.

Short-term traders should still be cautious about playing against the prevailing euro and equity trend. Short-term fixing will likely be followed by renewed buying of EURUSD, directing the pair to a retest of the year’s highs at 1.2350.

The FxPro Analyst Team