EUR/USD: Trading the German ZEW Mar 2013

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The German ZEW Economic Sentiment Index is based on a monthly survey of institutional investors and analysts which examines their views of the health and direction 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 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 climbed to 42.4 points in February, easily beating the estimate of 35.5 points. This was the highest reading since April 2010. The market estimate is even higher for the upcoming release, at 43.7 points. As a reading above the 0.0 level indicates optimism, the index is pointing to strong confidence in the German economy among the analysts and investors surveyed. Will the index meet or beat the rosy forecast?

Sentiments and levels

Despite Mario Draghi’s optimism, the prognosis does not appear good for the Eurozone, as the economies of the bloc continue to struggle, unemployment is rising and inflation is falling. Contrast this gloomy situation with that of the United States, where economic indicators show signs of a somewhat accelerated recovery. Nevertheless, the Federal Reserve is likely to leave policy unchanged, which is weighing on the dollar. The Federal decision later this week and the very busy European calendar promise excitement. So, the overall sentiment is neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3130, 1.31, 1.30, 1.2960, 1.2880 and 1.2805.

5 Scenarios

  1. Within expectations: 40.0 to 48.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 48.1 to 52.0: An unexpected higher reading can send EUR/USD well above one resistance line.
  3. Well above expectations: Above 52.0: A reading close to the zero level would indicate greater confidence in the German economy. A second resistance line might be broken on such an outcome.
  4. Below expectations: 36.0 to 39.9: A sharper decrease than forecast could send the pair below one support level.
  5. Well below expectations: Below 36.0: A very poor reading could result in EUR/USD breaking two or more support levels.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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