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IFO Surprises With a Bounce

Last updated 1/27/2009 4:33 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The IFO survey of business climate surprised to the upside printing at 83 versus  81  forecast  while the current assessment component also beat expectations coming in at 86.8 versus  85 projected. Although the current assessment reading was actually worse than the month prior, reflecting the deteriorating conditions  in the manufacturing sector, the overall  IFO  report suggested that at least for the time being sentiment amongst  European business leader appears to have stabilized.

One key variable that tends to correlate well with the IFO readings is the price of oil and recent declines in energy costs  contributed significantly to savings on the supply side serving  as a positive offset to the persistently dour conditions on the demand side.

The better than forecast numbers from IFO along with improvements in sentiment readings from Italy and Netherlands have sparked hope amongst euro bulls that the region may be seeing the start of a bottoming  out process. We believe such sentiments are premature, as the fallout from the credit crisis is likely to continue for the better part of this year. Nevertheless,  today’s positive IFO surprise along with yesterday’s better than expected US LEI readings have greatly improved investor sentiment across the globe triggering a broad rally in euro, pound and Aussie, as the theme of the night is – risk is back.

The EUR/USD climbed above 1.3300 on the news with 1.3384 serving as the next area of resistance.  However, with the unit having come so far so fast in the past 48 hours some pause may be due.  Risk attitudes will continue to determine the near term direction of the pair and if US equity markets fail to follow through on the gains in Asia and Europe, the EUR/USD& nbsp; rally may fizzle. On the other hand if today’s price action in US equities proves positive the 1.3400 level could be taken out by day’s end.    

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.