EUR/USD: Trading the German ZEW Nov 2011

The German ZEW Economic Sentiment Index is based on a monthly survey of  financial  experts  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  institutional investors and analysts  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 has been on a steady downward trend since February 2011, dropping to a dismal -48.3 in October. This was the index’s lowest reading since the financial crisis of 2008.  The markets are predicting more gloomy news, with a further drop in the index to -51.7.

Sentiments and levels

The debt  crises in Greece and Italy continue to weigh heavily on the markets.  In addition, the Euro Zone is experiencing anemic growth, and  may already be in recession. So, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3950, 1.3868, 1.3838, 1.38, 1.3725, 1.3650 and 1.3550.

5 Scenarios    

1. Within expectations: -57 to -45: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: -44.9 to -39: An unexpected higher reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above -39: This would indicate some growth and confidence in the German economy. A second resistance line might be broken on such an outcome.
4. Below expectations: -57.1 to -63: A sharper decrease than forecast could send the pair below one support level.
5. Well below expectations: -63: Due to the turmoil gripping the Euro Zone economies, a sharp decline cannot be ruled out. In this scenario, the Euro will drop, and could break two or more support levels.

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