The Euro might have reached near term lows
Binary options traders were surprised by news out of the Euro Zone’s strongest economy with German business morale rising for a second straight month in June confirming that that its GDP is gradually on its way to recovery.
After a contraction in late 2012 and a mild start to 2013, rising export expectations have improved sharply.
The Munich-based Ifo institute reported on Monday that its business climate index, which is based on a survey of some 7,000 firms, it inched to 105.9 in June from 105.7 in May, right in line with the forecast in a Reuters poll of 40 economists.
While the German economy managed to sustain growth in the euro zone during the early years of the region's debt crisis, it was gradually slowing last year and only just managed to rebound back up from the edge of recession in early 2013 boosted by brisk household spending. While the government expects exports as a traditional pillar of stability of the economy, to weigh on growth this year, the Ifo institute’s survey showed export expectations have started to turn, suggesting shipments abroad may assist the European industrial giant to moderately expand in the second half.
The German government’s economic forecasts foresee growth to tick up in Q2, despite recent data painting a mixed picture. Foreign trade, output and investor sentiment improved but industrial orders have plateaued and unemployment mildly ticked up. The EUR/USD pair opened around 1.3090 in early Sydney trading ticking up only moderately to 1.3120 on the aforementioned news before pulling back to squeeze stops below 1.3070 and reaching an eventual low at 1.3058. The rate has since rebounded as Germany’s Bundesbank president Jens Weidmann was spotted on the wires.
The German representative in the ECB governing council emphasized on low interest rates policy in his interview on Sunday with a German newspaper. He said the Euro Zone states and the private sector should not count on the current phase of low interest rates continuing forever. He also reaffirmed his criticism of the ECB's vow to buy up government bonds of struggling euro zone states and said that markets had ignored the fact that ECB President Mario Draghi had said that the bank would operate within its mandate – meaning that there would be restrictions imposed on the bond buys.
Asked by Sueddeutsche Zeitung whether Europe could afford rising interest rates at the moment, Mr. Weidmann replied that neither states nor the private sector should expect the current phase of low interest rates to continue permanently. The Bundesbank president has previously warned against keeping interest rates too low for too long, reemphasizing that all central banks faced the challenge of withdrawing monetary stimulus from the economy as soon as price stability risk emerged.
Looking at the charts we see that the high post IFO numbers is in play for now – in order for a tick up in prices for binary options on the EUR/USD we will need an close above 1.3093. A descending trend line needs to be broken on an hourly basis too – it is currently around 1.3094-5 so should we see a close above it in the near term buying calls is recommended.