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Forex

Forex: Hoe te handelen op het IFO cijfer?

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The German IFO business confidence survey is expected to reinforce an improved outlook for growth as economists forecast the measure for future expectations to increase for the fourth consecutive month to 82.6 from 81.6 in March however, as growth and inflation falter, firms may turn increasingly pessimistic towards the economy as the region faces its worst recession in over half a century.

Trading the News: German IFO Expectation

What’s Expected Time of release: 04/24/2009 08:00 GMT, 04:00 EST

Primary Pair Impact : EURUSD
Expected: 82.6 Previous: 81.6

Impact the German IFO Expectation report had over EURUSD for the past 2 mont hs

March 2009 German IFO Expectation Business confidence in Germany slipped to its lowest level since 1982, while firms raised their outlook for future growth as policymakers continued to take unprecedented steps to shore up the economy. The IFO business climate index fell to 82.1 from 82.6 in February, while a measure of expectations increased to 81.6 from 80.9, and the extraordinary efforts taken on by policymakers may continue to reinforce an improved outlook for future growth as the European Central Bank is anticipated to cut borrowing costs further in the month ahead. The ECB continued to hold a dovish tone following the policy meeting in March, stating that the interest rate could fall further from the record low of 1.50% as the downturn in the global economy intensifies, and may adopt tools beyond the interest rate as the outlook for growth and inflation remains bleak.
February 2009 German IFO Expectation The German IFO business confidence index unexpectedly fell to a 26-year low of 82.6 in February, while the gauge measuring future expectations increased to 80.9 from a revised reading of 79.5 in January as policymakers took unprecedented steps to soften the landing of Europe’s largest economy. After holding the benchmark interest steady this month, the European Central Bank is widely expected to lower the key lending rate by 50bp further in March as the International Monetary Fund expects the region to face its worst economic downturn in over half a century, and policymakers may take further steps to shore up the ailing economy as growth and inflation falter. Nevertheless, as ECB President Trichet remains reluctant to overshoot the interest rate, market participants have argued that the Governing Council has done too little, too late, and conditions are likely to get worse as trade conditions falter.

What To Look For Before The Release
Traders with access to market depth information via a quick platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:

Bullish Scenario: [/U] [/B]
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.

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How To Trade This Event Risk

The German IFO business confidence survey is expected to reinforce an improved outlook for growth as economists forecast the measure for future expectations to increase for the fourth consecutive month to 82.6 from 81.6 in March however, as growth and inflation falter, firms may turn increasingly pessimistic towards the economy as the region faces its worst recession in over half a century. The jump in the March ZEW investor confidence survey paired with the uptick in manufacturing and services suggests that the unprecedented steps taken on by policymakers have spurred an improved outlook for growth but nevertheless, as the Organization for Economic Cooperation and Development expects GDP to contract 5.3% this year, deteriorating fundamentals may weigh on businesses as trade conditions deteriorate. German exports fell for the fifth consecutive month in February, while factory orders fell at an annualized pace of 38.2% during the same period to record the worst slump since recordkeeping began in 1991, and retail sales unexpectedly slipped lower from January as households continued to cut back on consumption. Meanwhile, earlier this week the International Monetary Fund stated that the group anticipates economic activity in the Euro-Zone to fall 4.2% in 2009 amid initial projections for a 2.0% drop in the annual growth rate, while they expect the economy to contract 0.4% in 2010, and as the Governing Council fails to meet on common ground, market participants have argued that the central bank has done too little too late as growth prospects deteriorate at a record pace. A report by the Economy Ministry showed that industrial outputs fell for the six consecutive month in February, which pushed the annualized rate of production to -20.6% from a revised reading of -17.9% in January, while producer prices marked its first annual decline in five-years as price pressures dropped at its fastest pace since 2002, and the data suggests that business sentiment may weaken further as the economic docket continues to reinforce a weakening outlook for growth and inflation. Nevertheless, expectations for a rise in business expectations should boost the appeal of the euro, but a t the same time, as risk trends continue to dictate price action in the foreign exchange market, a drop in market sentiment paired with an unexpected slump in the IFO survey could drag the euro lower against the U.S. dollar as the reserve currency continues to benefit from safe-haven flows.

Projections for a rise in the IFO survey favors a bullish forecast for the single-currency, and as businesses are expected to hold an improved outlook for future growth, price action following the release could set the stage for a long euro trade. Therefore, an in-line print or a rise above 82.6 should send the exchange rate higher, and we will look for a green, five- minute candle subsequent to the event to confirm a buy entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance taking volatility into account), and this risk will establish our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
In contrast, the weaken outlook for the global economy paired with growing dissent amongst ECB council members could weigh on business sentiment, and an unexpected drop in expectations is likely to weigh on the single-currency as the outlook for growth and inflation falter. As a result, if the IFO survey crosses the wires weaker-than-expected, a drop below 80.0 could weigh on the exchange rate, and we will follow the same strategy for a short euro-dollar trade as the long position revealed above, just in reverse.

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