Solid IFO Lifts Euro; US Data Drags on Greenback


EUR/USD has lifted to the 20-day moving average near 1.1200 following a better than expected rise in the German May Ifo business conditions survey and with Draghi saying that the Eurozone outlook is the best for seven years. Upside potential will face headwinds given the lack of substantive progress at the latest summit in Riga this week between the Greek government and creditors in bailout negotiations. The dollar, meanwhile, also lacks convincing bullish narrative. Thursday’s weaker than expected existing home sales outcome and a dip in the Philly Fed index supported forecasts for only tepid pick up in Q2 growth after a very weak.

German May IFO held up better than feared, with the overall reading easing just marginally to 108.5 from 108.6 in April, against expectations for a drop to 108.3. The breakdown showed, however, that it was the current conditions indicator that held up the overall number, while the more forward looking expectations reading dropped to 103.0 from 103.4. This was the second consecutive decline in the expectations number, which together with the drop in ZEW readings suggests a slowdown in growth momentum, although with this recovery boosted mainly by consumption and domestic demand rather than manufacturing and exports as in the past, the relationship between overall Ifo and GDP may have changed.

ECB president Draghi stepped up his pressure on governments to speed up structural reforms, by highlighting that low potential growth materially increases the likelihood that central bank policy runs into the constraint set by the effective lower bound for interest rates, while higher potential growth would facilitate the stabilization task of monetary policy by allowing the equilibrium real rate to rise. Draghi said the outlook for the Eurozone is the best in seven years, but stressed that structural reforms are crucial to support fiscal stabilization, as they make public debt more sustainable, lessen the constraint of market discipline and thereby reopen fiscal space. Strong words, but with the ECB already lessening the constraint of market discipline, governments are delaying rather than speeding up structural reforms.

The post Solid IFO Lifts Euro; US Data Drags on Greenback appeared first on Forex Circles.

Source:: Solid IFO Lifts Euro; US Data Drags on Greenback

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