EUR/USD: Trading The German ZEW Apr 2014

German ZEW Economic Sentiment is based on a monthly survey of institutional investors and analysts and their views of 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 9:00 GMT.

Indicator Background

German ZEW Economic Sentiment surveys financial experts for their assessment of the direction of the German 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 sharp slide throughout 2014 and dropped to 46.6 points last month, well short of the estimate of 52.8. The reading for the March release stands at 46.3 points. Will the indicator reverse directions and beat the prediction?

Sentiments and levels

The  dollar was broadly lower last week as  the FOMC minutes  were more dovish than expected. However, this move is somewhat overextended, especially as  US  employment numbers have been solid. As for the euro, it  appears to  be overvalued and  high and Mario Draghi could make an appearance and talk down the currency as it approaches 1.40. In addition,  inflation numbers are likely to be revised to the downside, weighing on the euro. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.40, 1.3964, 1.3895, 1.3830, 1.38  and  1.3740.

5 Scenarios

1. Within expectations:  43.0 to 46.0: In such a case, the Euro is likely to rise within range, with a small chance  of breaking higher.
2. Above expectations: 46.1 to 50.0: An  unexpected higher reading can send EUR/USD above one resistance line.
3. Well above expectations: Above 50.0: In such a scenario,  a second resistance line might be broken.
4. Below expectations:  39.0 to 42.9: A sharper decrease than forecast could  push the pair below  one support level.
5. Well below expectations: Below 39.0: A very  weak release  could rattle the markets, and EUR/USD could break  a second  support level.

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