EUR/USD: Trading the German ZEW Jun 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 9:00 GMT.

Indicator Background

The German ZEW Economic Sentiment  index 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.

After two strong readings in March and April, the index dropped sharply in May, posting a reading of -2.4 points. The forecast for June is even worse, with an estimate of -5.4. Will the index rebound back into positive territory this month?

Sentiments and levels

The Euro-zone is breathing a bit easier with the narrow win by the pro-bailout party in Greece. However, the country’s economy is a mess, and a Grexit seems imminent. In addition, the Federal Reserve seems unlikely to take any concerted action, such as QE3. So, the overall sentiment is  bullish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.2814, 1.2760, 1.2686, 1.2670, 1.2623 and 1.2540.

5 Scenarios    

1. Within expectations: -9.0 to -1.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: -0.9 to 3.0: An unexpected higher reading into positive territory can send EUR/USD well above one resistance line.
3. Well above expectations: Above 3.0: 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: -13.0 to -9.1: A  sharper contraction  than forecast could send the pair below one support level.
5. Well below expectations: Below -13.1: Due to the turmoil gripping the Euro-zone economies, a decline deep into negative territory cannot be ruled out. In this scenario, EUR/USD could break two or more support levels.

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