Tradervox.com (Dublin) – The German ZEW economic sentiment index will be released on Tuesday at 0900 hrs GMT. ZEW takes into account the sentiments and views of institutional investors and analysts about the German economy for the month. If the reading is higher than the market forecast, the euro strengthens. The report surveys and assesses the views of financial experts in the country to provide a possible direction in the economy in the next six months. It takes into account the views about inflation, stock market and the exchange market hence making this indicator important as a predictor of medium term economic future in Germany.
The report will come after the euro has dropped to two-year low as crisis in the euro area continue to take a grip of the member nations. Investors are not impressed with the progress made in dealing with the situation as decision to help Spain in its banking problem has been met with some resistance. There are also some sentiments that Italy will need bailout sooner than later. Spain and Italy are some of the largest economies in the region and their prolonged debt crisis has led to bearish sentiments for the EUR/USD. Further, this situation has been exacerbated by the ECB decision to reduce interest rate and cut deposit rate which has been clipping the bank’s crisis fighting options.
With the report set to be released in the next hour; there are five different scenarios that are expected. If the index comes within the market expectation –that is between -18.0 to -10.0, the euro will increase within range; but there might be a slim chance of breaking higher. If above expectation, --that is -9.9 to -2.0, the euro-dollar pair may rise beyond one resistance line. If the index is well above market expectation –that is >-2.0, the pair will probably break a second resistance line as this would show increased optimism in the German economy which would resonate to confidence in the euro.
However, if this index comes in below the market expectation which is between -18.1 to -23.0; this would send the euro-dollar pair below a single resistance line. But is this is well below market expectation; that is below -23.1, then the pair will probably break two or more support lines.