EUR/USD: Trading the German ZEW Jan 2015

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 10:00 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 jumped in December, posting a reading of 34.9 points, its best showing in 8 months.  This easily beat  the forecast of 19.8 points.  More good news is expected in the January reading, with a forecast of 40.1 points. Will the indicator repeat and beat the estimate?

Sentiments and levels

The  Eurozone has been nagged by  deflation, weak growth and  last week’s bombshell from the SNB saw  EUR/USD lose more ground last week.  The ECB will likely press  the QE trigger at its policy meeting later  in the week.  Expectations for a €500 billion program  are probably priced in, but it could certainly be larger, which would push the euro to new lows. In the US recent numbers have been less than stellar, but  divergence continues to favor the US dollar.  So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.1750, 1.17, 1.1650, 1.1565, 1.15 and  1.1460.

5 Scenarios

1. Within expectations:  37.0 to 43.0: In such a case, the euro is likely to rise within range, with a small chance  of breaking higher.
2. Above expectations: 43.1 to 47.0: An  unexpected higher reading can send EUR/USD above one resistance line.
3. Well above expectations: Above 47.0: In such a scenario,  a second resistance line might be broken.
4. Below expectations:  33.0 to 36.9: A sharper decrease than forecast could  push the pair below  one support level.
5. Well below expectations: Below 33.0: A very  weak release  could rattle the markets, and EUR/USD could break  a second  support level.

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