IFO shows improvement across all sub-sectors

GER30, H4

German Ifo confidence surged higher in August. The overall reading jumped to 103.8 in August, from 101.7 in July and about 2 points higher than anticipated. The expectations reading rose to 101.2 from 98.2 and the current conditions indicator improved to 106.4 from 105.4. The fact that the expectations index rose so significantly is a very good sign, as is the fact that readings improved across all sub-sectors. Like in the PMI report, the services sector led the way, but interestingly, according to the Ifo manufacturing sentiment also improved, suggesting that trade concerns dissipated somewhat. Other surveys have brought somewhat different results, but the readings at least suggest that for now the German recovery remains intact, with the Ifo institute saying that current readings point to a quarterly growth rate of 0.5% in Q3. More arguments then for Draghi to stick to his plan to phase out net asset purchases by the end of the year.

European stock markets are mostly moving higher after positive leads from Asia and with an unexpected jump in German business confidence adding support. The GER30 was up 0.34% as of 8:16 GMT, the CAC 40 up 0.37% and the Euro Stoxx 50 gained 0.22%.

The GER30 reached on the data release, the 50% Fibonacci retracement level at 12,495.65, set since July’s peak. This level consider be strong Resistance area since it coincides with 2-weeks Support level at the end of July but also with the 50-day SMA. Hence as the asset moves in the 4-hour chart, above the 20 and 50 period SMA, with the upper Bollinger BAnds extending to the upside and momentum indicators switching from negative to positive momentum, the GER30 expected to continue moving northwards. The RSI is currently at 61, while it inclines since August 15. the MACD has just turned to the positive territory.

Therefore a break or a closing today above the 20 and 50 Day SMA, at 12469.11-12,506.50, could alert the retest of 61.8 Fibonacci retracement but also further to the upside, the 200-day SMA, at 12,700.00. To the downside, a return below previous month’s Resistance which has currently switch to Support level at 12,405.00, would suggest that bears are back and it is likely to push the asset to 12,290, or further down to August’s lows.

Nevertheless, UK markets are closed for a holiday today, which means trading volumes are lower than usual, but trade hopes, and a cautious Fed already underpinned a rally on Asian markets and US stock futures equally remain underpinned after a strong close last Friday.

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