EUR/USD: Are European Businesses As Optimistic As Trichet? Probably Not

Source: Daily FX

Sentiment amongst German businesses is likely to turn more pessimistic in June, according to the IFO survey. The figure is scheduled to be released at 04:00 EDT, and this release tends to be a significant market-mover for the EUR/USD pair on a very short-term basis. Given the surge in oil, broad indications of mounting inflation pressures, slowing in the Euro-zoneʼs economies, and the European Central Bankʼs staunchly hawkish bias over the survey period, the IFO reading is likely to fall in line with - if not more than - expectations. Furthermore, we saw that last weekʼs ZEW survey of German financial analysts slipped more than anticipated, weighing the risks for the IFO survey further to the downside. However, at the same time, the preliminary reading of the Euro-zoneʼs purchasing managers index (PMI) for the services sector will be released. The index is expected to ease slightly lower to 50.5 from 50.6, but the key here will be to see if it is above or below 50, as the former will indicate expansion in the sector, while the latter will signal contraction. The Euro-zone service PMI has barely managed to hold above 50 since the beginning of the year, suggesting that weakness in the sector will likely weigh on expansion as a whole throughout the region. Nevertheless, the German IFO survey will likely have the greatest impact on the European markets on Monday morning, unless PMI services misses forecasts by a wide margin.