On Monday, all market attention was focused on the geopolitical agenda, amid de-escalation signals from the US and Iran. Recent events surrounding the Middle Eastern conflict have significantly reduced demand for safe-haven assets and pushed macroeconomic data to the background.

However, this does not mean that the July IFO indices released on Monday have lost their significance for the market. On the contrary, they complete a logical sequence of key European leading indicators, alongside the ZEW and PMI indices published last week. All three reports demonstrate, for the most part, a similar dynamic, allowing one to speak not of random improvements in individual indicators, but of the formation of a positive trend in the Eurozone economy. This, in turn, is fundamentally important for the medium-term prospects of EUR/USD, as it affects expectations regarding the European Central Bank's future policy.

Almost all components of the report came in the "green zone," exceeding forecasts. Such a result indicates that the German economy is gradually emerging from a prolonged period of stagnation. Moreover, the report is important not only in itself—as mentioned above, it harmoniously and consistently completes a chain of leading indicators, forming a coherent picture of the state of the largest economy in the Eurozone.

The "headline" IFO business climate index rose this month to 86.6 points (up from 85.7 in June), while most analysts expected to see a more modest increase to 85.9. This is the highest value of the indicator since February of this year. Furthermore, one can already confidently speak of the formation of an upward trend: the index has been rising consistently (and quite actively) for the third consecutive month.

It is also worth noting that German companies became significantly more optimistic about the prospects for the next six months in July: the IFO business expectations index reached a five-month high of 86.7. This is an important point, as this indicator reflects future investment plans of companies, expectations regarding demand, and overall economic activity. The improvement in expectations indicates that businesses are gradually starting to believe in the recovery of the economy, despite ongoing external risks (and even in defiance of these risks).

Against the backdrop of optimistic forecasts and expectations, the assessment of the current state of business decreased—from 87.0 to 86.5. At first glance, this looks like a negative signal; however, such a combination is quite typical for an economy that is in the early stages of recovery. Companies acknowledge that the current situation remains challenging (current operational performance is still stagnant), but at the same time expect a noticeable improvement in business conditions in the coming months. This is precisely why the key index continues to show positive dynamics.

If we look at the sectoral structure of the report, the most encouraging signals came from the industrial sector. Enterprises have become noticeably less pessimistic about business prospects, and export expectations have improved amid a gradual stabilization of external demand. Meanwhile, the services sector and retail still appear less confident: consumer demand is gradually recovering, although the stabilization of interest rates is already supporting companies' expectations. The construction sector remains the weakest link, experiencing pressure from high structural costs. Nevertheless, even here the pace of worsening sentiment has significantly slowed.

It is also important to note another point. The July IFO report was compiled during another round of escalation in the Middle East, which means it took into account the effects of the recent spike in energy prices. In this context, the increase in business sentiment looks particularly indicative: German businesses demonstrated resilience despite ongoing geopolitical risks. Commenting on the release, the head of the Institute pointed out separately that despite the uncertainty surrounding the prospects of the Middle Eastern conflict, German companies "have become significantly less pessimistic."

I would like to remind you that the indices published last week also confirmed the improvement in sentiment within the German economy: in particular, the ZEW index rose to 26.3 points (from the previous value of 10.5), and the assessment of the current situation improved from -81.0 to -77.6 points. The preliminary composite PMI for Germany entered the expansion zone, rising from 49.5 to 51.2 points. At the same time, the industrial PMI reached 52.2 points—its highest level in more than four years.

Unlike the ZEW, which reflects the expectations of financial analysts and investors, the PMI shows the actual dynamics of business activity in companies. The IFO, in turn, provides a more comprehensive assessment of the business climate, combining both perceptions of the current situation and enterprises' expectations. As a result, the ZEW, PMI, and IFO have formed a unified picture of the gradual recovery of the German economy.

Thus, the report has favored the euro, strengthening its fundamental positions. However, the market is still living in the realm of geopolitics: while the focus remains on the de-escalation process in the Middle East, the negotiation track (and not macro statistics) will determine the short- and medium-term dynamics of EUR/USD.

Therefore, it is advisable to consider long positions in the pair only after a confident price fixation above the resistance level of 1.1410 (the middle line of the Bollinger Bands indicator on the daily chart), after which the pair is expected to return to the range of 1.1410 – 1.1470, within which it has traded for the past three weeks.