Is EUR/USD Forming A Bearish Reversing Setup After Deteriorating Business Climate in Germany?

The start of the week has been relatively stable, apart from some volatility in Gold, taking into account the geopolitical developments that took place in Russia over the weekend, which turned out to be nothing more than just news to consume. It appears that the situation in Moscow is returning to normalcy, as the Mayor announced this morning that there would be no restrictions in the city, contrary to earlier announcements. Despite the uncertainty, risk sentiment and market appetite remain unaffected, and there hasn’t been a notable increase in demand for safe-haven assets.

EUR/USD has been trading flat around the 1.0900 level. It has been unable to fully take advantage of the initial weakness in the US dollar (USD) as this pair opened with a slight bullish gap. The economic data has been light as well, with the German Ifo business climate indicator being the main event. It showed considerable weakness and Ifo economists are sounding pessimistic. So, buyers have been reluctant at the 50 SMA (yellow) on the H4 chart, which has turned into resistance and no the price is reversing down.

German Business Climate Released by Ifo – 26 June 2023

• June Ifo business climate index 88.4 vs 90.7 expected
• Prior 91.7; revised to 91.5
• Current conditions 93.7 vs 93.5 expected
• Prior 94.8
• Outlook 83.6 vs 88.0 expected
• Prior 88.6; revised to 88.3

It’s softer readings across the board as compared to May and that reflects worsening conditions in the German economy towards the end of Q2. This was also reflected in the PMI data at the end of last week, and feeds further to stronger recession risks as we move towards the second half of the year.

Remarks by Ifo Economist, Klaus Wohlrabe

• Storm clouds are forming for the German economy
• Weak demand for industry, order backlog is falling
• Industry export expectations are noticeably down, global rate hikes are dampening demand

The deterioration in demand conditions and manufacturing recession was already highlighted in the PMI data last week, so this just adds to a bit of colour to that.

EUR/USD Live Chart