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.


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 rose last month to -11.5 points, well above the estimate of -14.6 points. Although this was the index’s best performance since May, it is clear that confidence in the German economy remains weak. The markets are predicting a slight improvement in the November realease, with a forecast of -10.1 points.


Sentiments and levels

With the US elections behind us, the markets have shifted focus to the fiscal cliff crisis. If a compromise is hammered out in Washington, the markets will breathe a sigh of relief and the euro should improve. However, regarding Greece, things could also go wrong, very wrong. There is still a possibility that Greece will exit the euro-zone. With Greece in economic and political turmoil, how much longer can leaders extend and pretend? At this time, everybody knows that Greece will need more debt restructuring, something that could be impossible for Germany to do. In addition, European leaders now know who is in the White House – with whom to coordinate a potential Grexit. In such a case, EUR/USD could fall like a rock. So, the overall sentiment is neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.280, 1.28, 1.2750, 1.2690, 1.2624 and 1.2590.


5 Scenarios

  1. Within expectations: -15.0 to -5.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.

  2. Above expectations: -4.9 to 0.0: An unexpected higher reading can send EUR/USD well above one resistance line.

  3. Well above expectations: Above 0.0: A reading in positive terrritory would indicate more confidence in the German economy. A second resistance line might be broken on such an outcome.

  4. Below expectations: -20.0 to -15.1: A sharper decrease than forecast could send the pair below one support level.

  5. Well below expectations: Below -20.0: In this scenario, the euro would likely drop, and the pair could break two or more support levels.