EUR/USD: Trading the German ZEW Jan 2013

The German ZEW Economic Sentiment Index 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

The German ZEW Economic Sentiment  surveys financial experts for their assessment of the direction of  economy in the next six months, based on a variety of economic indicators. This makes the index an important indicator of the medium-term future of the German economy.

In the December release, the indicator rose to 6.9 points, crushing the estimate of -11.4 points. As well, it was the first reading in positive territory since May. The markets are predicting even better news in   the upcoming reading, with an estimate of 12.2 points. Will the indicator meet or beat this rosy forecast?

Sentiments and levels

The Eurozone economy continues to struggle, and this is expected to continue well into 2013. Even Germany,  is  undergoing a significant slowdown (or recession) in Germany, as  seen in recent releases. The euro has  moved  up sharply, and  this will make a recovery more difficult.  In the US, economic signs are mostly positive, as underscored in last week’s key releases.  We cannot expect to see any change in Fed policy anytime soon, but the continued, although slow,  improvement in the economy and the absence of a recession  are bullish for  the dollar. So, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3480, 1.34, 1.3360, 1.3290, 1.3255 and 1.3170.

5 Scenarios    

1. Within expectations:  8.0 to 16.0: In such a case, the euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:    16.1 to 20.0: An unexpected higher reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above 20.0: The likelihood of such an outcome is low. A second resistance line might be broken in this scenario.
4. Below expectations:  4.0 to 7.9: A  weaker reading than  forecast could send the pair below one support level.
5. Well below expectations:  Below 3.9:  If economic sentiment takes a tumble, the euro would likely lose ground, and could break two or more support levels.

For more on the Euro, see the EUR/USD forecast.