EUR/USD: Trading the German ZEW Dec 2011

The German ZEW Economic Sentiment Index is based on a monthly survey of institutional investors and analysts  regarding their  views on the outlook for the German economy.  A reading that is higher than the market forecast is bullish for the Euro.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Tuesday at 10:00 GMT.

Indicator Background

The German ZEW Economic Sentiment  surveys financial experts for their assessment of the direction of  economy in the next six months, based on economic  data  including inflation, exchange rates and the stock market. This makes the index an important indicator of the medium-term future of the German economy.

The indicator has been on a steady downward trend since February 2011, marking sixteen consecutive  months  of lower readings.  Last month, the  indicator hit an alarming -55.2, and there seems to be no end in sight to this gloomy picture. The markets are predicting a further drop for December, albeit very slight, to  -55.7.

Sentiments and levels

Europeans leaders seem unable or unwilling to implement badly need measures to resolve the eurozone debt crisis, which, of course, will not simply disappear on its own.  The Euro will continue to be affected by the crisis, and recent interest cuts by the ECB  makes the Euro less attractive against other currencies. Thus, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3650, 1.3550, 1.3480, 1.3420, 1.3380, 1.3280, 1.3212, 1.3145, and 1.3080.

5 Scenarios    

1. Within expectations: -61 to -49: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: -48.9.9 to -44: An unexpected higher reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above -44: This would indicate more confidence in the German economy. A second resistance line might be broken on such an outcome.
4. Below expectations: -66 to -61.1: A  sharper decrease than forecast  could  push EUR/USD below one support level.
5. Well below expectations: Below -66: This scenario is unlikely, due to relatively stable economic German indicators. In this scenario, the Euro will drop, and could break two or more support levels.

For more on the Euro, see the EUR/USD forecast.