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21.05.2008 - The EUR/USD situation

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Date: 2008-05-21 13:01

The Eurodollar reacted very strong to the Ifo Institute Index, which increased to 103.5 points in May from 102.4 points in April (which by the way was the lowest reading since January of 2006 when it was at 101.9). The reading is much better than expectations since analysts forecasted a drop to 102 points.


The EURUSD reacted immediately with a strong increase from 1.5642 all the way to 1.5735. The importance of the Ifo report is that it confirms the increasing trend of the euro, seen for the last couple of days. Mostly, it confirms the inflationary worries of investors from yesterday, where PPI inflation in Germany was much higher than forecasted and the ZEW’s Institute President forecasted a soon hike of interest rates in the Euro zone by the European Central Bank.

Eyes of investors will also be focused today on the FOMC minutes that will be published tonight. The minutes publication can decide on the EURUSD direction today and probably tomorrow. It is possible that it will make investors to look at the European economy from a different perspective and at the same time open the way for the Eurodollar for new record highs.


Adam Narczewski