Taking a Fundamental Approach to Forex Trading

Trading the Euro with the IFO Report

The IFO business climate survey is one of the most important economic indicators that currency traders around the world pay a great deal of attention to them. Released monthly in Munich by the IFO Institute for Economic Research, the IFO Report is a sentimental survey based on calculating 7000 monthly questionnaires. Participants, major German firms, are required to choose one of three characteristics (Good - Satisfactory - Poor) that best describe the current business climate. For their medium term expectations (next 6 months), the formula changes to (Most favorable - Unchanged - More unfavorable).

Basic Categories of the IFO Report:
1) Manufacturing
2) Construction
3) Whole Sale
4) Retail Sale

Interpreting the numbers:
The Value of the IFO Index can fluctuate for 100 points above or below the base line of 100

•	A typical reading of 100 indicates that the business climate is neutral or balanced.
•	Above 100: The more points the index can add above 100, the healthier the business climate. A robust economy may increase the inflationary pressure, and hence the European Central Bank may respond by tightening interest rate. This would produce a bullish scenario for the Euro
•	Below 100: If the index falls far below 100, it signals a bad or "unfavorable" business climate. Thus, the German economy may slow down and recession would be in play. To avoid that, the ECB may respond by cutting interest rate. This would create a bearish scenario for the Euro.