EUR/USD: Trading the German ZEW Sep 2011

The German ZEW Economic Sentiment Index is based on a monthly economic survey of economists and analysts and their views of the German economy. A higher reading than the previous month signals growth and bodes well for the Euro, while a lower reading could send the Euro downwards.

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

Published on Tuesday at 9:00 GMT.

Indicator Background

The German ZEW Economic Sentiment  surveys financial experts for their assessment of the direction of  economic  data  including inflation, exchange rates and the stock market over the next six months. 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, when it came in at 15.7. If the August reading was absolutely dismal at -37.6, September’s forecast is even worse at -43.9. If the index’s downward spiral continues, this will likely have a negative impact on the Euro.

Sentiments and levels

Economic growth in both Europe and the US continues to remain sluggish. In addition, the Federal Reserve may implement monetary easing which would weaken the dollar. So, the overall sentiment is neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3838, 1.3788, 1.37, 1.3630, 1.3570, and 1.3510, and 1.3440.

5 Scenarios    

1. Within expectations: -50 to -35: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: -34.9 to -25: An unexpected higher reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above -25: This would indicate some growth and confidence in the German economy. A second resistance line might be broken on such an outcome.
4. Below expectations: -50 to -58: A sharper decrease than forecast could send the pair below one support level.
5. Well below expectations: -58: Due to the uncertainties in the Euro Zone economy, a sharp decline cannot be ruled out. 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.