EUR/USD:Trading the German ZEW Economic Sentiment

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  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. As a market-mover, any unexpected reading can affect the direction of EUR/USD.

The index rose slightly in March, reaching 48.5 points and beating the estimate. However, the markets are  braced for a downturn in April, with a forecast of 41.5 points.  Will the index surprise the markets with a strong showing?

Sentiments and levels

EUR/USD took advantage of  the comprehensive QE program from Japan, and it may be time to turn back. The strength of the euro worries policymakers in Europe, and the continuing weakening of the yen is raising concerns in the US. European economic numbers  are far from shining, and the deteriorating economy is likely to weigh on the euro, as the pair nears the important 1.3170 level, even if US data has significantly worsened since March. So, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3170, 1.3140, 1.31, 1.3050, 1.29600 and 1.2880.

5 Scenarios    

1. Within expectations:  37.0 to 45.0: In such a case, the  pair is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  45.1 to 49.0: An unexpected higher reading can send EUR/USD well above one resistance line.
3. Well above expectations: Above 49.1: 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:  33.0 to 36.9: A sharper decrease than forecast could send the pair below one support level.
5. Well below expectations:  Below 33.0  In this scenario, we could see EUR/USD break two or more support levels.

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

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