German ZEW Economic Sentiment 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
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 dropping throughout 2014, and, fell to just 33.1 points last month. This was well off the estimate of 41.3, and marked the lowest level we’ve seen since December 2012. Another weak release is expected in May, with the estimate standing at 35.2 points. A weak reading could push the euro downwards.
Sentiments and levels
The ECB is looking for a weaker euro and is not willing to let go, correcting the error of initially closing the door on even lower rates. With low bond yields and a negative deposit rate, money is likely to slowly leave the euro-zone. Inflation numbers have not improved despite the rate cuts, and this could deal yet another blow to the common currency. In the US, recent positive signs point to a slightly more hawkish Fed, and not only the automatic $10 billion taper. All in all, there is now more room to the downside for the pair. So, the overall sentiment has turned from neutral to bearish on EUR/USD towards this release.
Technical levels, from top to bottom: 1.37, 1.3677, 1.3650, 1.3585, 1.3550 and 1.35.
5 Scenarios
Within expectations: 32.0 to 38.0: In such a case, the euro is likely to rise within range, with a small chance of breaking higher.
Above expectations: 38.1 to 42.0: An unexpected higher reading can send EUR/USD above one resistance line.
Well above expectations: Above 42.0: In such a scenario, a second resistance line might be broken.
Below expectations: 28.0 to 31.9: A sharper decrease than forecast could push the pair below one support level.
Well below expectations: Below 28.0: A very weak release could rattle the markets, and EUR/USD could break a second support level.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.
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