• IFO shows slightly weaker numbers compared to expectations
  • Institute presents its remarks and hunches with regard to the German election’s outcome
  • EUR remains on the back foot against the US dollar

The outcome of the German election is by far the most important for financial markets, however it’s likely that a long-lived reaction will be muted or even irrelevant. Sure, we’ll have a period of uncertainty due to complex coalition discussions but it should not reverse the German political scene upside down.

That said, it’s worth mentioning today’s reading presented by the German IFO institute which measures the current business climate and expectations for the following six months. It’s compiled based on opinions delivered by manufacturers, builders retailers and wholesalers. Cutting to the chase, the headline came in at 115.2 against the forecast at 116. Otherwise, expectations slid from 107.9 to 107.4 while the street’s call suggested a tiny bounce to 108. Finally, the current assessment sapped from 124.6 to 123.6 falling short of estimations at 124.7.

link do file download linkGerman IFO gauges weakened slightly in September, both remained on a solid track though. Source: Macrobond, XTB Research

Having looked at the chart above one could notice that despite a decline registered this month, both measures remained broadly unfazed from a longer term perspective. Thus, it suggests an uninterrupted solid economic expansion going forward.

Furthermore, let’s add some remarks delivered by the IFO institute pertaining to the election’s fallout. Chief economist of the IFO suggested the “Jamaica” coalition would be hard to forge, however there were no indications of a change of a course for the German economy. He also referred to GDP growth saying that regardless of a bit weaker third quarter compared to the first half of the year, full-year economic growth would be strong.

link do file download linkThe EURUSD remains little changed given the downbeat result of the German election. Source: xStation5

In spite of the fact that the ultimate coalition will be hard to be hammered out, the single currency has chiefly played down these risks. The EURUSD seems to stay on course to test its crucial support area at around 1.1840 and if that level is broken, it could entail an extended leg lower.