Summary:

• Headline IFO index comes in above estimations
• IFO expectations index strikes highest level since January 2014
• EURUSD breaks out a crucial support area but corrects after IFO
  

Although, we are still a few hours off the Draghi’s appearance, the euro has been already fairly volatile breaking out an important support zone. A move downward has been retraced to some extent though as German IFO revealed excellent figures.

All three IFO indices suggest that the economic backdrop (GDP growth depicted at the chart) could be improving further. Source: Bloomberg

Let’s begin with the headline index which came in at 115.9 beating a forecast at 115.5 and being just shy of a June’s 116. On top of that, the IFO expectations indicator picked up to 107.9 while 106.8 was expected, the highest level since January 2014. A mere decline was seen in case of the current assessment which subsided slightly from 125.4 to 124.6 and fell short of an estimation at 125. Nevertheless, the prior reading was revised marginally up from 125.4 to 125.5.

By and large, there was another wave of splendid readings from the German economy. What’s more, it seems that an unexpected drop seen in the ZEW index, when it comes to the future assessment (6 months ahead), might be played down. This is especially true when we notice that both services and manufacturing PMIs turned out be considerably higher in August (preliminary releases) boding well for economic growth in the whole euro area. It could also strengthen the case for the beginning of cuts in bond purchases.

The EURUSD has swung so far breaking an important support and making a U-turn afterward. Source: xStation5

Having looked at a short-term view on the EURUSD, one could spot that the pair has reversed substantially in the aftermath of rosy IFO readings. A local descending trend line could provide support for sellers and make another turnaround on the pair.