EUR/USD: Trading the German ZEW Oct 2012


The German ZEW Economic Sentiment Index, a key release, is based on a monthly survey of institutional investors and analysts. The survey looks at their views of and level of confidence in 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

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 indicator showed a nice improvement in the previous release, recording a figure of -18.2 points. The markets are expecting a better performance this month, with an estimate of -14.6 points. Will the index meet expectations and continue to move upwards?

Sentiments and levels

The uncertainty over a Spanish bailout continues to weigh on the markets. Although a Spanish bailout request isn’t likely before October 21st, Spain could still surprise, especially if yields rise. The upcoming EU Summit will likely bolster the euro, given such past events. Leaks towards the event and major announcements at its end usually boost markets in the short term. Implementing decisions and making real progress is of course, another matter entirely. In addition, the economic situation in Europe, including in the core, does not show positive signs, to say the least. So for this week, there is room for rises. Later, it doesn’t look so promising for the euro. So, the overall sentiment is bullish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3060, 1.30, 1.2960, 1.29, 1.2814, and 1.2750.

5 Scenarios  

  1. Within expectations: -18.0 to -10.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: -9.9 to -6.0: An unexpected higher reading can send EUR/USD well above one resistance line.
  3. Well above expectations: Above -6.0: This would indicate improving confidence in the German economy. A second resistance line might be broken on such an outcome.
  4. Below expectations: -22.o to -18.1: A weaker reading than forecast could send the pair below one support level.
  5. Well below expectations: -26.0: A sharp decline in the index would likely hurt the euro, and EUR/USD could break a second support level.

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

Get the 5 most predictable currency pairs

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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