EUR/USD Bounces Off Resistance On Weak Economic Sentiment

The ZEW  Economic Sentiment for Germany continued its tradition of disappointing. It dropped to -15.1 points, deep in negative territory. Early expectations stood on a drop to only -11.8 points. The current conditions for July provided a positive surprise.  Euro/dollar retreats from high resistance.  

EUR/USD is now trading at 1.4180. It challenged the resistance line of 1.42 just before the release, and even flirted above this line, but is now on the retreat.

Update 9:12 GMT: The tables have turned – current conditions, which came out better than expected, are now in the limelight. EUR/USD moves higher, above 1.42, although the move is limited.

Update 9:47 GMT: The pair returned to below 1.42.

The “current conditions” number was expected to drop from 87.6 to 85 points, but surprised with a rise to 90.6 points. This slows the downwards move of the pair. The headline number, which reflects future expectations, dropped. The all-European figure from ZEW came out at -7, within expectations.

Last month, the score dipped into negative territory once again, after 8 months of optimism. A negative number means pessimism.

The all important ZEW Economic Sentiment indicator tends to be pessimistic. In many cases, the result falls short of economists’ expectations. This happened throughout most of 2011 so far.

The debt crisis, and especially a second bailout package for Greece, is high on the agenda for the euro, towards the EU summit that is scheduled for Thursday. On the same day, Spain and Italy will test the markets as they seek raising money through bond auctions. They will probably succeed, but the price that they will pay is going to be high.

EUR/USD is supported by 1.4160, followed by 1.4120 and 1.4070. On the upside, 1.42 and 1.4282 are important lines.

For more on this pair, see the euro to dollar forecast.