Euro Declines on Unexpectedly Lower German Business Climate 

THE TAKEAWAY: The IFO business climate survey disappoints expectations at 101.4 -> Analysts expected the climate to climb on the ECB’s OMT plan -> Euro is trading lower

The IFO Institute’s monthly surveys surprised markets by reporting that the business climate had fallen in September, as surveyed business executives’ current assessment and expectations for the future were both lower. The business climate survey was reported at 101.4, the lowest survey result since early 2010, and disappointing expectations for the business climate to rise to 102.5 instead of falling from August’s 102.3 survey result.

Both the current assessment survey and the expectations survey disappointed expectations in September, coming in at 110.3 and 93.2 respectively. However, any survey result above 100.00 is still positive.

Many analysts thought that the recent 1000 point rally in the Euro and the ECB’s recent announcement of the OMT bond purchase plan would have increased the business climate in the Euro-zone’s biggest contributor to the GDP. However, the lower business climate indicates that the negative effects of the Euro-debt crisis continue. The German GDP has remained positive for the past two quarters, although growth slowed to 0.3% in 2Q.

The lower business climate is a negative indication for economic growth and therefore the Euro dropped 25 points against the US Dollar following the release. EURUSD has been declining since setting a new 4-month high a week ago, and support could be found at 1.2905, by the 23.6% retracement of the August rally.

EURUSD 15-minute: September 24, 2012

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