EUR/USD: Trading The German ZEW Oct 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.

Update:  German ZEW Economic Sentiment goes negative – EUR/USD approaches support  

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  6.9 points in the previous reading. However, this was enough to beat the estimate of 5.2 points. The markets are expecting a September reading of just 0.2 points. A reading below the zero level would point to pessimism and could push  hard on the euro.

Sentiments and levels

Although ECB  head Mario  Draghi took a hands-off approach  in the last rate decision,  he doesn’t appear keen  on letting the euro rise. In addition, the region’s locomotive and great hope, Germany, is already feared to have entered a recession. In the US, the FOMC minutes were unexpectedly dovish  and hurt the dollar, but since then, the all important labor data in the US has only improved as seen in the excellent NFP, the  best JOLTS since 2001 and the lowest  4 week moving average in jobless claims since 2006. The dollar uptrend is intact.  So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.28, 1.2750, 1.27, 1.2660, 1.2570  and  1.25.

5 Scenarios

1. Within expectations:  -3.0 to +3.0: In such a case, the Euro is likely to rise within range, with a small chance  of breaking higher.
2. Above expectations: 3.1 to 7.0: An  unexpected higher reading can send EUR/USD above one resistance line.
3. Well above expectations: Above 7.0: In such a scenario,  a second resistance line might be broken.
4. Below expectations:  -7.0 to -3.1: A sharper decrease than forecast could  push the pair below  one support level.
5. Well below expectations: Below -7.0: A very  weak release  could rattle the markets, and EUR/USD could break  a second  support level.

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