Euro dips as business confidence slows

The euro has started the new trading week with slight losses. Currently, EUR/USD is trading at 1.1623, down 0.18% on the day.

German business confidence slows

The Ifo German Business Climate index fell in October to 97.7, down from 98.9 a month earlier. This was the lowest reading since April and missed the forecast of 97.9 points. Perhaps even more concerning is that the index has slowed for four successive months, pointing to a worrisome downward trend. Ifo noted that supply-chain disruptions continue to hamper businesses and capacity utilisation in manufacturing was falling.

Germany is the eurozone’s largest economy, and the latest German growth forecasts do not bode well. Last week, five leading economic institutes, cut their 2021 forecasts to 2.4%, down sharply from the previous forecast of 3.7%. In a joint statement, the institutes said that supply chain disruptions were hampering manufacturing, while the services sector would continue to underperform.

The ECB has sought to play down surging inflation, sticking to the stance that inflation is temporary. The central bank is unlikely to change its accommodative policy at this week’s policy meeting but will have to give thought to tightening policy if inflation heads higher. In Germany, inflation has accelerated for three straight months and climbed to 4.1% (YoY) in September. This marked the highest level since 1993.

The week ended with significant comments from Fed Chair Powell. In remarks at a conference, Powell said, “I do think it’s time to taper; I don’t think it’s time to raise rates”. This was the clearest message yet that the Fed is poised to start tapering at next week’s policy meeting. Tapering should provide a lift for the US dollar, and with the ECB showing no signs of a change in its accommodative stance, the euro remains vulnerable to a rotation into US dollars.

EUR/USD technical

• EUR faces resistance lines at 1.1685 and 1.1725.

• There is weak support at 1.1588, followed by support at 1.1531.