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Soft IFO Erodes Euro Confidence

David Becker
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Soft IFO Erodes Euro Confidence

The EURUSD is lower on Wednesday following the soft Ifo data, as yield continue to decline to record lows. The September Ifo confidence indicator slumped driven by a sharp decline in the expectations component, despite a rebound in orders and the ECB’s latest round of easing measures. The Ifo also follows declines in September ZEW and PMI reports, which will keep pressure on the ECB to do even more.

Draghi said this week again that the risk of doing too little is greater than doing too much.

The ECB president said the ECB’s policy will “stay accommodative for an extended period of time, while other countries” tighten. Draghi stressed that the “euro is irreversible”, adding that the ECB “will to whatever it takes” within its mandate “to make sure it is”.

German September Ifo confidence slumped to 104.7 from 106.3 in the previous month. The breakdown showed the current assessment reading falling to 110.5 from 111.1 and the expectations reading to 99.3 from 101.7. The drop in the IFO expectations reading is particularly worrying, as it shows that the rebound in orders nor the ECB’s latest round of easing measures had a positive impact on expectations or at least slowed down the deterioration in sentiment.

Following the dip in the September ZEW and PMI readings, the data will keep pressure on the ECB to do even more and after Draghi highlighted this week again that the risk of doing too little is greater than the risk of doing too much, speculation of QE will be kept alive.

The technicals show the EURUSD is testing the lows near 1.28, while momentum has flattened. The MACD (moving average convergence divergence) index is printing near zero and the trajectory of the momentum indicator is flat. The RSI is printing near 32 which is on the lower end of the neutral range.

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