24.06.201916:17 Forex Analysis & Reviews: EURUSD: Euro buyers were not scared by the weak report from Ifo, but the growth potential is limited

The demand for the euro remains quite strong despite the weak report on the sentiment of German companies, which in June announced a deterioration in their prospects for the next few months due to growing pessimism.

The lack of reaction to sharp sales of the euro, even at current highs, with such a weak report, once again indicates the strength of large players who bet on the growth of risky assets against the US dollar due to the expected decrease in the Federal Reserve interest rates. Currently, the federal funds rate is in the range of 2.25% -2.50%.

For a real revival of the economy and the resumption of growth of key sectors, a reduction in the rate of at least 0.5% is required, and preferably by 0.75% at once.

Apparently, along with such actions by the Fed, it will be necessary to launch another wave of bond purchases and take additional measures of unconventional policy, which will further weaken the US dollar in the medium term.

It is for this reason that traders ignored the report of the German Institute Ifo. According to the data, the Ifo business sentiment index in June 2019 dropped to 97.4 points against 97.9 points in May of this year. Economists had expected the index to fall to 97.6 points in June.

If we analyze the index data in more detail, it is clear that the decrease did not occur in all directions. Thus, the expectations index in June fell to 94.2 points from 95.2 points in May, while the current conditions index showed an increase to 100.8 points from 100.7 points in May.

The deterioration in the sentiments of business circles in Germany already suggests that the 2nd quarter for the economy will be a period of weakness after a good first quarter. Economic activity will continue to weaken under the threat of new downside risks.

Some of the risks that have identified the largest companies include tensions in the Persian Gulf, as well as duties from the United States, which the White House constantly introduces. The situation with Brexit, which is now at an impasse, also does not give optimism. Let me remind you that the most likely candidate for the post of Prime Minister of Great Britain is Boris Johnson, who is a supporter of the tough Brexit.

As for the technical picture of the EURUSD pair, it remained unchanged compared with the morning forecast. Further growth is unlikely to continue without the necessary downward correction. The 1.1400 level test was the key target of speculative players. Now, it is best to return to long positions for correction from the support of 1.1340 or for the rebound from a larger support range – 1.1310. The task of the buyers of risky assets this week will be a breakthrough above the resistance of 1.1400, which will lead the trading instrument to the area of highs: 1.1460 and 1.1540.