26.08.202600:51 Forex-elemzések és áttekintések: EUR/USD. The August IFO Indices: Another Trump Card for the Euro

The EUR/USD pair remains range-bound; however, the macroeconomic balance is gradually but confidently shifting in favor of buyers. The euro currently benefits not only from the persistent weakness of American macroeconomic data but also from increasingly convincing signs of recovery in the European economy. The IFO report published on Tuesday provided further confirmation of this trend. The sequence of strong ZEW, PMI, and IFO indicators has formed a compelling picture of recovery in the European economy.

Thus, the IFO business climate index from the IFO Institute rose in August to 88.8 points, after being revised to 86.7 points in July. Most analysts had forecasted a more modest increase to 87.2. The index has shown a consistent upward trend for four consecutive months, reaching a yearly high. Moreover, the improvement was not only "quantitative" but also "qualitative," as both components of the index also exceeded expectations. The assessment of current conditions rose from 86.5 to 88.5 points, while the expectations index increased from 86.8 to 89.1 points. This is a crucial point: while in previous months the improvement in the IFO was primarily attributed to a decrease in pessimism about the future, now German companies are assessing both the current situation and prospects more favorably. This indicates a trend towards more sustainable optimism.

Another important point is that positive dynamics were recorded across all major sectors—industry, services, trade, and construction. This means the recovery is no longer limited to a single segment of the economy.

However, the IFO cannot be considered unconditionally strong in an absolute sense: the index remains notably below levels characteristic of a full-blown economic boom. Nevertheless, the direction of movement appears increasingly convincing and pronounced. It is also worth noting that the growth in indicators occurred despite a renewed rise in oil markets and energy prices.

The GDP growth data for Germany, published today, serves as supplementary confirmation of the strong signal from the IFO. The second estimate of GDP showed that the German economy grew by 0.3% quarter-on-quarter in Q2, while the initial report indicated a growth of 0.2%. The figure has remained in positive territory (0.3%) for three consecutive quarters. Year-on-year, the indicator was also in the "green zone": rather than the expected 0.9% growth, GDP increased by 1.0% (the strongest result since Q3 2022).

In this context, it's important to compare the IFO with two other significant indicators: the ZEW and the PMI. As a brief reminder, the German ZEW Economic Sentiment Index released last week rose to 34.2 points (up from 26.3), significantly exceeding the forecast (30.0). The sub-index of current conditions also improved, rising from -77.6 to -61.1. Meanwhile, the composite PMI for the Eurozone rose to 52.1 points in August (the highest since November last year), with new orders increasing at their fastest pace in more than three years, and the manufacturing PMI reached its highest level in 54 months.

The difference between these indicators is essential. The ZEW reflects the sentiment of analysts and institutional investors, serving as a kind of leading indicator for financial market expectations. In contrast, PMI is closer to real economic activity: it shows what is happening with orders, production, employment, and prices right now, in the moment.

The IFO occupies an intermediate position. This indicator covers the economy more broadly than PMI and simultaneously combines assessments of the current situation with six-month expectations. Therefore, the ZEW, PMI, and IFO do not "compete" with each other; instead, they complement each other (especially in this case). The first provides insights into how to improve expectations, the second reflects the recovery in current business activity, and the third indicates that optimism is gradually spreading to a fairly broad range of German companies.

For the European Central Bank, this is an important signal. Not long ago, the weakness of the German economy served as an argument against further tightening of monetary policy. Now, however, the situation is changing: the recovery of the German economy gives the regulator more grounds to continue tightening policy. Moreover, the Eurozone economy is growing faster than expected: GDP for the currency bloc increased by 0.4% in Q2, while inflation accelerated to 2.9% in July, with core inflation rising to 2.5%. Inflation in the services sector reached 3.3%. Unemployment in the Eurozone is at historically low levels, and July's PMI recorded its first increase in employment this year. Meanwhile, inflation expectations and high energy prices pose a risk of secondary effects through wages and prices.

According to the latest Reuters survey conducted from August 10-13, an overwhelming majority of economists (57 out of 69) expressed confidence that the European Central Bank will raise the deposit interest rate by 25 basis points.

Thus, the fundamental picture for the EUR/USD pair is shaped in favor of buyers not only by the weak Nonfarm Payrolls, sluggish retail sales, and slowing CPI and PPI in the U.S., but also by the strengthening of the euro. The ECB is getting more and more grounds for tightening its policy – at a moment when the arguments for raising the Fed's rate are gradually weakening.

The only significant obstacle to realizing this advantage remains the geopolitical agenda, which periodically returns the dollar to the status of a safe-haven asset. Therefore, in the near term, the EUR/USD pair is likely to maintain range trading within the price range of 1.1640–1.1700, the boundaries of which correspond to the upper and lower lines of the Bollinger Bands on the four-hour chart.