German Ifo confidence bounced back in February, with the headline reading rising to 111.0, from 109.9 in January and matching the December figure. Strong orders data already hinted at a rebound in the Ifo, while we expected a slight rise in the number, consensus expectations were for a renewed decline, so the data are much stronger than anticipated. The breakdown for the diffusion index, which gives the balance of positive and negative answers, confirmed that the rise in the overall index, was driven by a rebound in manufacturing sentiment. Wholesale trade numbers also improved, but construction and retail trade suffered setbacks. The uptick in inflation will eat into real disposable income.
Meanwhile, UK final quarter GDP data for 2016 was a good and bad report. The quarterly figure was revised upwards to 0.7% from 0.6% principally fueled by a big jump in exports to 4.1% from the 2.0% expected. The annual figure was a miss at 2.0% from the expected 2.2% and business invest was a significant miss coming in at -1.0% when expectations were for a slight growth of 0.1%. Additionally there was very low income growth with employee compensation increasing only 0.1% following a 1.3% rise in Q3 and below expectations.
Cable fell on the news to break 1.2440 to trade as low as 1.2434. The EURGBP 1 hour chart had a sudden and rapid “about turn “ following the German and UK data, rising from morning lows just shy of 0.8400 to currently trade north of the 10 and 20 period moving averages at 0.8445. The 10 period EMA has now broken and is likely to provide support (0.8435) as Euro recovers from the morning low. The break of the last down fractal at 0.8430 is also likely to provide support. The break of the 20 period moving average (0.8445) needs to hold for further upside in the short term to the 4 hour resistance at 0.8460.
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