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Stronger than expected IFO survey offers some support to the EUR – BTMU

FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, observes that the euro derived some support form the IFO release yesterday as it strengthened modestly to rise above 1.2400 levels post last week’s sell-off.

Key Quotes

“The euro has strengthened modestly early this week rising tentatively back above the 1.2400-level after the sharp sell-off late last week. The euro derived some support from the release yesterday of the stronger than expected IFO survey which revealed an unexpected pick up in German business confidence in November.”

“IFO economist Wohlrabe stated that the lower euro exchange rate and falling oil prices were positively reflected in the improved business climate reading. He also noted that if the improving trend in business confidence is confirmed in December it is likely to signal a strengthening of growth momentum in the 1H 2015.”

“The release of the breakdown of German GDP in Q3 revealed that private capital investment remained a drag on growth contracting for the second consecutive quarter by -0.9%, which helped offset a strong rebound in private consumption which expanded by 0.7% representing the strongest quarter of growth since Q3 2011”

“A firming of economic growth in the euro-zone is likely to offer only limited support for the euro as expectations are expected to remain high that the ECB will still deliver further monetary easing given uncomfortably low inflation and inflation expectations.”

“The market is increasingly pricing in the likelihood that the ECB will soon announce government bond purchases which is weighing on the euro.”

“As a result the euro was sensitive to comments yesterday from Bundesbank President Weidmann reiterating that there are “high legal hurdles for ECB government bond buying”.”

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