Sentiment amongst Germany businesses is likely to turn more pessimistic in June, according to the IFO survey. The figure is scheduled to be released at 04:00 EDT, and this release tends to be a significant market-mover for the EUR/USD pair on a very short-term basis. Given the surge in oil, broad indications of mounting inflation pressures, slowing in the Euro-zone’s economies, and the European Central Bank’s staunchly hawkish bias over the survey period, the IFO reading is likely to fall in line with – if not more than – expectations.
What Are The Markets Facing?
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Bonds – 10-Year German Bund Futures
As speculation of a rate hike by the European Central Bank mounts, German Bunds have plunged to nearly one-year lows of 109.65. However, signs of weakening growth could help Bunds recover, as the German IFO survey and Euro-zone service PMI are both anticipated to fall lower. Near-term resistance looms above at 110.75.
FX – EUR/USD
EUR/USD continues to consolidate within a wide range of 1.5350 – 1.5800, as the US dollar has weakened over the course of the week on easing speculation that the Federal Reserve is so hawkish that they will hike rates on June 25. Looking ahead to Monday, the releases of the German IFO survey and Euro-zone service PMI are both expected to fall lower, suggesting growth in the Euro-zone is deteriorating further. If the figures drop in line with or more than expected, EUR/USD could break above near-term resistance at the 50 SMA to target 1.5710, though sharp gains could reach for 1.5800. On the other hand, stronger-than-expected figures could send EUR/USD tumbling toward 1.5575.
Where will the euro go next? Discuss the topic with other traders in the EUR/USD Forum.
Equities – Xetra DAX Index
The Xetra DAX index failed to break above resistance at the confluence of the 100 SMA and the 38.2 percent fib of 6,167 – 7,231 at 6,808/25. Given the sharp declines seen on Friday, the DAX could simply consolidate above near-term support at the 61.8 percent fib at 6,574 on Monday. Nevertheless, traders should keep an eye on financial market news, as indications of distress amongst financial institutions could trigger widespread sell-offs in the global equity markets (and for that matter, forex carry trades). Furthermore, Monday’s releases of the German IFO survey and Euro-zone services PMI could weigh on stocks, as the data is likely to reflect worsening sentiment and slowing growth.
Written by Terri Belkas, Currency Analyst for DailyFX.com
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