EUR/USD: ZEW Investor Survey Likely to Reflect Dismal European Sentiment

Despite a mild improvement last month, investor sentiment throughout the Euro-zone is anticipate to deteriorate as the ZEW survey is forecasted to fall to a record low of -42.0 from -41.4. The news will not be entirely surprising, as the European Commission’s most recent surveys of economic, industrial, and services sector confidence all dropped more than expected.

                               [B]11-Mar[/B]             [B]Euro-zone ZEW Survey (MAR) (10:00 GMT; 05:00 EST)[/B]             [B]German ZEW Survey (MAR) (10:00 GMT; 05:00 EST)[/B]                                            [B]Expected:                              -42.0[/B]             [B]Expected:                            -40.0[/B]                                            [B]Previous:                               -41.4[/B]             [B]Previous:                             -39.5[/B]                

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What Are The Markets Facing?[/B]
Despite a mild improvement last month, investor sentiment throughout the Euro-zone is anticipate to deteriorate as the ZEW survey is forecasted to fall to a record low of -42.0 from -41.4. The news will not be entirely surprising, as the European Commission’s most recent surveys of economic, industrial, and services sector confidence all dropped more than expected. Indeed, building price pressures are hurting disposable income for consumers and denting profit margins for businesses, and things are only getting worse. The European Commission’s flash estimate for February CPI held at a 14-year high of 3.2 percent, which leaves the European Central Bank very little room for maneuver regarding monetary policy. Indeed, given ECB President Jean-Claude Trichet’s press conference comments last week, it appears that the central bank remains staunchly hawkish tone as he said, “The latest information has confirmed the existence of strong short-term upward pressure on inflation…The economic fundamentals of the euro area are sound…Yet the level of uncertainty resulting from the turmoil in financial markets remains high. Against this background, we emphasize that maintaining price stability in the medium term is our primary objective in accordance with our mandate.” Another major issue for investors is the value of the euro, as its rapid appreciation to record highs hurts prospects for export growth. On the other hand, the strong currency is helping to offset import price inflation, which is likely why Trichet has only resorted to mild verbal intervention. Overall, Tuesday’s sentiment data will likely highlight the dim prospects for the Euro-zone, and if the figures are worse-than-expected, markets may start to bet that the ECB will seriously consider cutting rates as soon as CPI eases back.
[B]Bonds – 10-Year German Bund Futures[/B]
Bunds continue to climb higher and with risk aversion propping fixed income markets globally, the daily charts still look bullish. However, heavy resistance loom near 118 and event risk from release of the German ZEW survey could push Bunds to test resistance at the January 22 high of 118.08, with sharp rallies targeting the December 2006 high of 118.88. However, if investor sentiment proves to be more optimistic than expected, the contract could ease back towards the 117 level.


[B]FX – EUR/USD[/B]
The euro continues to consolidate gains above the 1.5300/15 level after rocketing to a record high of 1.5459 last Friday. However, ECB President Trichet’s commentary that the Bank is “concerned about excessive exchange-rate move” weighed on the currency on Monday morning. As we mentioned in a special report on FX intervention last week, verbal intervention by European officials is relatively common. However, the impact of Trichet’s comments may be limited as he stopped short of calling the moves “brutal.” Looking ahead, the release of the Euro-zone and German ZEW surveys could lead the EUR/USD pair lower as investor confidence is likely turning more pessimistic. Near-term support rests 1.5300/15, and a sharp drop lower may take on the 1.5150. On the other hand, a surprisingly strong release like we saw last month along with remarkably bearish US dollar sentiment could keep the euro’s rally intact.
Has the Euro topped or are more gains in store? Discuss the topic with other traders and DailyFX analysts in the EUR/USD Forum.
Visit our recently updated Euro Currency Room for specific resources geared towards the Euro.


[B]Equities – Xetra DAX Index[/B]
The German Xetra DAX Index has managed to recover somewhat after testing the 6,400/50 level, as traders become a bit more risk seeking to the benefit of carry trades. However, if the German ZEW survey reflects increasingly pessimistic sentiment amongst investors, the DAX could break below the one-year lows to target the 6,300 level. On the other hand, if investors remain confident that a slowdown in global growth will not impair the Euro-zone economy significantly, the index could bounce towards 6,750. Nevertheless, broad risk aversion trends remain the primary driver of many stock markets – including the Xetra DAX Index – so traders should beware of volatile price action in Asian markets the evening before.

[B]Written by Terri Belkas, Currency Analyst, [/B][I]Forex Capital Markets LLC, DailyFX.com[/I]
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