The euro surged on the news that the business climate indicator for Germany, the biggest economy in the Euro Area, jumped substantially in February. To get a better grasp of the current state of the single currency, have a look at our previous analysis of the EURUSD pair.
Earlier today, the ifo Institute revealed that the German business climate indicator grew to its highest value since October 2021, beating the preliminary forecasts. The positive development comes despite the escalating tensions between Russia and Ukraine, and seesawing industrial activity in Germany over the same period.
The euro immediately reacted to the news by surging against the pound, as shown on the 4H chart above. The latest downtrend, taking the form of a descending channel, was seemingly completed above the major support level at 0.83120. The latter has already prompted several bullish rebounds over the last several days, which is why the price action is expected to break higher.
Notice that the downtrend itself takes the form of a 1-5 impulse wave pattern, as postulated by the Elliott Wave theory. Given that the last impulse leg (4-5) was terminated above the 0.83120 support, this represents yet another signal of such a bullish rebound.
If the price action manages to break out above the upper limit of the channel, its immediate obstacle would be the 61.8 per cent Fibonacci retracement level at 0.83592. A minor pullback to the support from either of the two could then follow. The 38.2 per cent Fibonacci at 0.84048 represents the next major target for the eventual bullish rebound.
According to ifo's findings, the indicator grew to 98.9 points in February, measuring a sizable rebound from the 94.8-point dip that was recorded in December. The change was effectuated by the gradual easing of pandemic restrictions in Germany, even though the overall economic sentiment in the Eurozone remains relatively subdued.