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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.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Tuesday at 9:00 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 has been climbing in the past few months and came in at 49.6 points in August, its best reading in over three years. The markets are expecting another solid release for September, with an estimate of 49.2 points.

Sentiments and levels

The negotiations in Washington over the debt ceiling could go down to the wire, but  one  is hopeful  that common  sense will prevail in Congress and the  US will resolve its issues on time: it may be a temporary fix or a long term one, but a removal of the fear of default after the October 17th: (this Thursday) debt ceiling deadline will surely help the US dollar. While a resolution is partly baked in, the dollar still has room to gain.

Over in Europe, ECB president Mario Draghi is now less upbeat than in the recent rate decision: credit conditions are tightening, inflation is falling and new monetary tools are being talked about. Further hints about a rate cut or an LTRO could weigh on the euro. The eurozone continues to struggle, and Germany,  the largest economy in the  zone,  has been posting mixed numbers. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3710, 1.3570, 1.35, 1.3460, 1.3325 and 1.3240.

5 Scenarios

  1. Within expectations: 46.0 to 52.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 52.1 to 56.0: An unexpected higher reading can send EUR/USD well above one resistance line.
  3. Well above expectations: Above 56.0: A  strong reading  would indicate improving confidence in the German economy. A second resistance line might be broken on such an outcome.
  4. Below expectations:  42.0 to 45.9: A sharper decrease than forecast could send the pair below  one support level.
  5. Well below expectations: Below 42.0: A  very weak release  could rattle the markets, and EUR/USD could break below two support levels.

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