Euro Slides Despite Improving Sentiment Data

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Euro Slides Despite Improving Sentiment Data

The ZEW Indicator of Economic Sentiment for Germany rose to 48.4 in January, up from 34.9. Forecasts called for a reading around 40.1. For the Eurozone in general, the indicator came in at 45.2, compared to a 31.8 reading in December. The forecast was around a 37.6 print.
german sentiment 1/20
(click to enlarge; source: ZEW)

This is the 3rd straight increase in the indicator for both Germany and the Eurozone. As we can see from the chart above, Germany’s reading has been boosted sharply since turning negative in October (-3.6).

The ZEW report was titled ” Upward Trend Continues Despite Capital Market Turmoil“. It highlighted the Greek Election, and the Swiss National Bank’s abandoning the euro cap. Despite these shakeups, “decreasing crude oil prices and a depreciating euro have contributed to a further gain of the indicator,” according to ZEW President professor Clemens Fuest.

Despite the positive readings, the euro was pressured as we approach Thursday’s ECB monetary policy decision, one many anticipate will include the announcement and details of QE.

The EUR/USD was consolidating around 1.16 and continues to do so as we get started with the 1/20 US session.

EUR/USD 1H Chart 1/20
eurusd 1h chart 1/20
(click to enlarge)

The sentiment data release did not have any impact because the market is focusing on the pending ECB decision. Before Thursday, the euro should be bearish to sideways. If there is a bullish attempt, the outlook should be limited to 1.1725-11750, where we see the 200-hour SMA as well as a previous support/resistance area.

To the downside if price can hold below 1.16, and break below a support pivot at 1.1550, it will expose the current lows around 1.1460.

The EUR/GBP looks ready for bearish continuation:

EUR/GBP 1H Chart 1/20
eurgbp 1h chart 1/20
(click to enlarge)

Outside of the immediate reaction, the market was not move by the ZEW data points. EUR/GBP broke below a flag pattern during the 1/20 pre-European session, signaling a bearish continuation. The breakout at least exposes the 0.76 handle ahead of Thursday’s event risk.

If there is a pullback, watch for resistance around 0.7660-75, a support/resistance area.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.