EUR/USD: Trading the German ZEW Sep 2013

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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 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 stuck below the 40 level for quite some time, but improved in July to 42.0 points. This beat the estimate of 40.3 points. The markets are expecting another improvement, with an estimate of 45.3 points. Will the indicator meet or beat this prediction?

Sentiments and levels

ECB head Draghi remains cautious about the European recovery and other officials warn that it might be temporary. These worries come for good reasons: German numbers have been weaker and many Eurozone countries still have a long way to go. With a third bailout for Greece now seeming inevitable and more uncertainty over the German elections, there is plenty to worry about.

However, the wild card in this scenario is the US Federal Reserve: tapering of 10-15 billion is becoming priced into the markets, as the general picture is positive. This will not be a huge surprise, even if it is dollar positive. However, nobody knows when the next stage will be, as the Fed has done a good job of keeping the markets in the dark. The tone of the statement accompanying the decision remains a mystery. In general, the US economy has an advantage over the European one and this should be reflected in a lower EUR/USD, but perhaps this will happen after the tapering and after the German elections. So, the overall sentiment is neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.37, 1.3520, 1.3450, 1.3325, 1.3240 and 1.3175.

5 Scenarios

  1. Within expectations: 42.0 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 51.0: An unexpected higher reading can send EUR/USD well above one resistance line.
  3. Well above expectations: Above 51.0: A strong reading would indicate improving confidence in the German economy. A second resistance line might be broken on such an outcome.
  4. Below expectations: 39.0 to 41.9: A sharper decrease than forecast could send 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 two 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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