German Ifo jumps higher again, with the overall reading rising to 111.0 from 110.4, beating expectations of 110.6. After the strong German manufacturing PMI and the jump in orders it was no surprise what the current conditions indicator was the main driver, with the reading jumping to 116.6 from 115.6, but the future expectations number also nudged higher. The December improvement meant that the overall Ifo rose to 33.0 in Q4, from 30.2 in the second quarter. The Ifo institute already said last week that Q4 GDP growth could surprise on the upside and lifted its growth forecast for next year. And indeed, it seems the German recovery is coming along nicely. Yet, the very expansionary ECB policy and the tight labour market conditions also mean there is rising risk of imbalances, including acceleration in inflationary pressures over the medium term. The low interest rate environment is also putting a strain on German banks and the German pension system, especially as home ownership rates and private sector wealth levels are lower than elsewhere in Europe.
EURUSD is mired in a narrow range centred around 1.0665. Activity is low with year-end conditions fully kicking in today. The above-forecast German Ifo headline had no apparent impact, assuming that a six pip blip higher doesn’t count. The euro breached above its Friday peak during the Asia trade earlier, leaving a two-session high at 1.0479. That put a bit more distance in from the near 14-year low of last Thursday at 1.0366. EURUSD momentum remains bearish. The 14-day RSI, is presently at 38.96, comfortably above the 30.0 which indicates “oversold” conditions despite relatively sharp declines over the last couple of weeks. The Parabolic SAR, Moving Averages and Bollinger bands all suggest further weakness, following the break of 1.0500 last week. I am in a SHORT position from 1.0440 with Target 1 1.0345 and Target 2 1.0160. Initial EURUSD resistance is at 1.0500-25 and then 1.0645-65.
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