EUR/USD: Trading the German ZEW Mar 2012

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

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 index is on an upswing, and jumped from -21.6 in  January to 5.4 in February.  This was the index’s first reading in positive territory since  May 2011. The forecast calls for  a  further  rise to 11.2.  If the index can  meet  or beat the market’s prediction, we could see the Euro react and move upwards.

Sentiments and levels

The Greek debt crisis continues to linger, although things may stabilize for now. In the US, there is little chance of any major shift in monetary policy. So, the overall sentiment on EUR/USD has turned from bearish to neutral towards this release.

Technical levels, from top to bottom: 1.3280, 1.3212, 1.3150, 1.3050, 1.30, 1.2945 and 1.2873.

5 Scenarios    

1. Within expectations:  7.0 to 15.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 15.1 to 19.0: An unexpected higher reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above 19.0: This would indicate  sustained growth and confidence in the German economy. A second resistance line might be broken on such an outcome.
4. Below expectations:  3.0 to 6.9: A sharper decrease than forecast could send the pair below one support level.
5. Well below expectations: Below 3.0: Due to the turmoil in Greece, a decline well below market predictions cannot be ruled out. In this scenario, the EUR/USD will drop, and could break two or more support levels.

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