German Business Confidence Jumps to 4-Month High

German Business Confidence Jumps to 4-Month High
November 26, 2019


The eurodollar rose against the yen yesterday after Germany’s Ifo (Institute for Economic Research) reported a four-month high business confidence in November, signaling moderate economic expansion in the final quarter of the calendar year. The EUR/JPY currency pairs uptrend was also aided by a downward revision of Japan’s growth by the International Monetary Fund. From a low of 119.75, the EUR/JPY pair recorded a high of 120.10 in the past 24 hours.

The business confidence index increased to 95 in November, from 94.70 in October. The reading was in accordance with anticipations. The institute stated that the German economy is signaling strength. The most powerful euro area economy is likely to expand by 0.2% in 4Q 2019. Carsten Brzeski, an ING economist, opined that the Ifo index indicates that the economy, and more precisely, the manufacturing sector, could be in the stage of bottoming out, but a quick reversal is not anticipated.

Ralph Solveen, an economist at Commerzbank, opined that the survey increases the belief that Germany economy will not enter into a deep recession. Nevertheless, according to Solveen, there are no indications of an end to the current stagnation.

The survey showed that the current situation index increased slightly to 97.9, from 97.8 last month, but missed economists forecast of 98. The companies were also less pessimistic than in October. The expectations index rose to 92.1, from 91.6 in the earlier month.

Mirroring the weak current situation index, the business environment in manufacturing declined in November. Nevertheless, the business scenario in services bettered. This gives a hint that business will be quite good this coming holiday season. On the contrary, business climate in construction declined slightly as enterprises were less pleased, and anticipations were more subdued.

In other news, the International Monetary Fund slashed its growth outlook for Japan and suggested the government to adopt a fiscal policy that backs short-term growth. It is the third downward revision in 2019.

IMF Managing Director Kristalina Georgieva: “Fiscal policy should be supportive to protect near-term growth and promote inflation momentum. Beyond the short-run, a clear commitment to long-term fiscal sustainability is essential.”

As per the final statement of the 2019 Article IV mission to Japan, the GDP is expected to increase 0.8% in 2019, a notch below the earlier forecast of 0.9%. For 2020, real GDP growth is forecast to decline to 0.5%, as outside demand remains sluggish, causing weakness in export-oriented investment.

Despite the sluggish economic growth, consumer price inflation is forecast to move up slowly. However, it will continue to stay below the Bank of Japan’s 2% target.

The IMF further stated that the BoJ should continue with its accommodative policy in order to boost economic expansion while increasing inflationary pressure.

The lender also suggested increasing the sales tax to 15% by 2030 and to 20% by 2050. Furthermore, IMF advised increasing capital gains tax to 30% from 2022 onwards. The better-than-anticipated Ifo economic data from Germany is expected to keep the euro bullish in the short-term.

Commenting on IMF’s forecast, Hiroshi Miyazaki, a senior economist at Mitsubishi UFJ Morgan Stanley, said, “The IMF’s comments add support to Abe’s fiscal stance. He wants to do a speedy and substantial stimulus in case there’s an economic slowdown after the sales tax hike just as existing public spending peaks out.”

The historical price chart indicates that the EUR/JPY currency pair is having considerable support at 119.75 levels. The next resistance is anticipated only at 120.70 levels. Additionally, the stochastic oscillator is out of the bearish zone and is ascending. Therefore, we can expect the currency pair to rally in the short-term.

EUR - technical analysis - 26th Nov 2019

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Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world

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