EUR/USD: Trading the German ZEW Jan 2014

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

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 posted a superb reading of 62.0 points in November. This was up from 54.6 a month earlier and easily beat the estimate of 55.3 points. The markets are expecting the upswing to continue, with the December estimate standing at 63.4. Will the indicator again surprise the markets and beat the prediction?

Sentiments and levels

It may be a new year, but so far in 2014 we’re seeing more of the same as the Eurozone continues to struggle. The one bright light is out of  Germany, which  is showing some strength.  Persistently weak growth  could lead to deflation, despite all the denials. Will the ECB make a move? While still not priced into the price of the euro, there is a good chance that the  Bank will set a negative deposit rate as early as March, with interest rates at a record low of 0.25%.

In the US, the  dismal news from the NFP has been quickly overshadowed by some solid releases, and speculation that the FOMC is going to taper once again at the end of the month. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.38, 1.3675, 1.3615, 1.3550, 1.3515 and 1.34.

5 Scenarios

1. Within expectations: 60.0 to 63.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 63.1 to 66.0: An unexpected higher reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above 66.0: In such a scenario,  a second resistance line might be broken.
4. Below expectations:  57.0 to 59.9: A sharper decrease than forecast could  push the pair below  one support level.
5. Well below expectations: Below 57.0: A  very weak release  could rattle the markets, and EUR/USD could break  a second  support level.

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