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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.

Update:  German ZEW Economic Sentiment Falls- EUR/USD follows

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 strong reading  61.7  points in December, but this fell short of the estimate of 63.4. The markets are not expecting much change, with the estimate  for the upcoming release  standing at 61.3 points. Will the indicator beat this prediction?

Sentiments and levels

The euro got a boost from better than expected GDP  numbers across the Eurozone and we could get more optimism from ZEW and PMIs during the week. On the other hand, despite some hiccups in US employment readings,  the Fed’s taper train is still on track. The FOMC meeting minutes could prove this once again and the US dollar  stands to  post broad gains if the US economy gets a thumbs-up from the Federal Reserve.

The failure of EUR/USD to break out of the recent range shows that much more is needed for an upside break out. Downside risks come from another mention of negative deposit rates, which ECB policymakers have not hesitated to suggest publicly.  As we’ve seen the euro is very sensitive to such talk. So, the overall sentiment is  neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.40, 1.3893,  1.38, 1.37, 1.3650 and  1.3515.

5 Scenarios

  1. Within expectations: 59.0 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:  56.0 to 58.9: A  sharper decrease than forecast could  push the pair below  one support level.
  5. Well below expectations: Below 55.0: A  very weak release  could rattle the  markets, and EUR/USD could break  a second  support level.

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