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.
The indicator has lost ground recently, with the past two releases in the mid-30 range. However, a reading over zero indicates optimism, so the index continues to point to confidence in the German economy. The markets are not expecting any significant change in the June release, with an estimate of 38.2 points.
Sentiments and levels
We are seeing less pressure on the euro now that Draghi put negative rates on the backburner. At the same time, the economic situation in Eurozone is not good and the ECB actually downgraded its forecasts. Recent PMIs could serve as a stark reminder of the ongoing recession in Europe, which will continue to weigh on the euro.
In the US, economic releases continue to remained mixed: while jobless claims and retail sales exceeded expectations, consumer sentiment fell. The Fed has hinted at tapering QE, and although it may not act for quite some time, speculation about scaling back Fed purchases is bullish for the dollar. So, the overall sentiment is neutral on EUR/USD towards this release.
Technical levels, from top to bottom: 1.3480, 1.34, 1.3350, 1.3255, 1.32 and 1.3160.
5 Scenarios
- Within expectations: 35.0 to 41.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
- Above expectations: 41.1 to 44.0: An unexpected higher reading can send EUR/USD above one resistance line.
- Well above expectations: Above 44.0: Such a reading would indicate improving confidence in the German economy. A second resistance line might be broken on such an outcome.
- Below expectations: 32.0 to 34.9: A weak reading could see the pair drop below one support level.
- Well below expectations: Below 32.0: A sharp drop in the index could rattle the markets, and EUR/USD could break two or more support levels.
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