German IFO Business Climate Index improves to 88.4 in October

Akhtar Faruqui FXStreet

German IFO Business Climate Index rises to 88.4 in October, beating estimates of 87.8 and 87.7 in September.

However, the Current Economic Assessment Index dropped to 85.3, from 85.7 in September. The sentiment data also missed the estimates of 85.5.

The IFO Expectations Index, which indicates firms’ projections for the next six months, rose to 91.6 from 89.8 in September, revised higher from 89.7.

Market Reaction

EUR/USD remains broadly calm after the German IFO data release around 1.1635 during European trading hours.

This section below was published at 06:43 GMT ahead of the German IFO data for October.

The German IFO Survey Overview

Germany’s IFO institute will publish its business survey for October on Monday at 0900 GMT. The headline IFO Business Climate Index is expected to edge higher to 87.8 this month, from a 87.7 reading in September.

The Current Assessment sub-index is set to tick a tad lower to 85.5 in October from September’s 85.7.

How could the German IFO Survey affect EUR/USD?

EUR/USD is likely to remain steady if the IFO Business Survey data turn out mixed, as anticipated. Any surprise uptick in the German business activity could provide support for the Euro (EUR), along with receiving support after European Central Bank (ECB) Governing Council member José Luis Escrivá said on Sunday that he is satisfied with current settings for borrowing costs, while inflation is at the target.

The EUR/USD pair may face challenges as the US Dollar (USD) may gain ground following reports that the United States (US) and Chinese negotiators have reached a consensus on major disputes. This development paves the way for Presidents Donald Trump and Xi Jinping to meet on Thursday to finalize a trade deal aimed at easing tensions.

Technically, the EUR/USD moves little after three days of gains, hovering around 1.1630 at the time of writing. The 14-day Relative Strength Index (RSI) remains below the 50 level, strengthening the bearish bias. The pair may find its initial support at the psychological level of 1.1600, followed by the two-month low of 1.1542. On the upside, the immediate barrier lies at the nine-day EMA of 1.1628, followed by the 50-day EMA at 1.1660.

Euro FAQs

What is the Euro?

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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