German Confidence Soars, But the Euro Stands Pat

ForexNewsNow | Published on October 22, 2010 at 10:24 am

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EUR USD analysis - The EU flagNEW YORK (Forex News Now) – In forex trading news today, German business confidence climbed to the highest level in three years in October as indicated by the German Ifo Business Climate Survey while a move by G20 leaders to target cuts in current-account imbalances to stem the tensions in the currency market is facing some opposition.

EUR/USD analysis reveals the pair made a lower high and a lower low and last week’s high, resistance level near 1.4159, now seems to be firmly in place.

German Ifo Survey

The German Ifo business confidence survey was better than expected, but failed to lift the euro over the 1.40 resistance level.

In October, German business confidence climbed to the highest level during the past three years.  The German Ifo was increased to 107.6 in October vs. 106.8 in the prior month.

Analysis of the EUR/USD had created expectations of a small decline in the Ifo survey.   When combined with yesterday’s increase in PMI manufacturing there is a sense that the euro has further to climb.

The future expectations index, which is a guide to how the economy will perform down the road, rose to 105.1 from 103.9.

EUR/USD analysts are now suggesting that economic activity increased during the beginning of the 4th quarter.  Additionally, French business confidence also rose and the quarterly reading showed a large improvement in future output expectations, which together with the rebound in German numbers will support the arguments that there is no need for additional bond purchasing, similar to the QE that the US is likely to undertake.

The euro moved higher on the German Ifo survey news, but failed to regain the 1.40 level.  News earlier in the week that the Chinese Central Bank raised their benchmark interest rate has created a slight bid under the dollar, which is trumping other fundamental news.

G20

In other news related to EUR/USD analysis, a proposal from the G20 to target cuts in current-account imbalances to stem the tensions in the currency market is facing some opposition.

The U.S. and South Korea are driving the idea to bring surpluses and deficits below specific levels. This could be a way to get countries like China, to agree to binding targets aimed at re-balancing global growth.  The countries opposing this idea are Japan and Germany.  Both countries are export lead in term of growth, and this idea would hamper their current economic models.

Technical Picture

On a weekly chart, the EUR/USD made a lower high and a lower low, and last week’s high, resistance level near 1.4159 now seems to be firmly in place.  The market tried numerous times this week to push above the 1.40 level, but each time the efforts were discarded.

The 2-year yield differential between the US and Germany is now close to 50 basis points in favor of Germany, which should continue to favor Euro purchases.  The RSI remains above 60, after moving down rapidly which shows that upward momentum have been temporarily damaged.  A close above the 1.4159 level will be bullish for the cross and restart the trend.

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