The German ZEW investor confidence survey is expected to improve for the seventh consecutive month in May as economists forecast the index to increase to 20.0 from 13.0 in the previous month however, as the current outlook for the economy is expected to hold near its lowest level since 2003, fears of a deepening downturn could weigh on the exchange rate as region faces its worst recession in over half a century.
Trading the News: German ZEW Survey
What’s Expected
Time of release: 05/19/2009 09:00 GMT, 05:00 EST
Primary Pair Impact : EURUSD
Expected: 20.0
Previous: 13.0
Impact the German ZEW Survey report had over EURUSD for the past 2 months
| Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
| Apr 2009 | 04/21/2009 9:00 GMT | 2.0 | 13.0 | -1 | +22 |
| Mar 2009 | 03/17/2009 9:00 GMT | -8.0 | -3.5 | +21 | -10 |
| The German ZEW investor confidence survey improved for the sixth consecutive month in April, with the index jumping to a two-year high of 13.0 from -3.5 in the previous month however, the current outlook for the economy slipped to -91.6 from -89.4, which is the lowest since September 2003, as the region faces its worst economic downturn in over half a century. The data suggests investors are holding an improved outlook for the future as policymakers take unprecedented steps to shore up the ailing economy and at the same time, the European Central Bank is expected lower the overnight lending rate to a record-low in May as growth and inflation falter. Meanwhile, the ECB is also anticipated to adopt unconventional measures to manage monetary policy beyond the interest rate to shore up the euro-region however, as the Governing Council fails to meet on common ground, the lack of decisive action could weigh on the outlook for future policy. | |
March 2009 German ZEW Survey
| Investor sentiment in Germany unexpectedly rose to its highest level in nearly two-years as the ZEW survey increased to -3.5 from -5.8 in February. Meanwhile, the gauge which evaluates the current situation of the economy fell to -89.4 from -86.2 in the previous month, and conditions may get worse as Europe’s largest economy faces a deepening recession. As the European Central Bank forecasts the annual rate of growth for the euro-region to contract 2.7% this year, and expects economic activity to remain subdued in 2010, the governing board is anticipated to lower the benchmark interest rate further in an effort to stem the downside risks for growth and inflation. As a result, investors are pricing another 25bp rate cut by the ECB next month however, as President Trichet remains reluctant to overshoot the interest rate, the central bank may adopt additional policy tools as the economic downturn intensifies. | |
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
| Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release. | Bearish Scenario: |
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The German ZEW investor confidence survey is expected to improve for the seventh consecutive month in May as economists forecast the index to increase to 20.0 from 13.0 in the previous month however, as the current outlook for the economy is expected to hold near its lowest level since 2003, fears of a deepening downturn could weigh on the exchange rate as region faces its worst recession in over half a century. The preliminary GDP reading for Europe’s largest economy showed economic activity fell at a record pace in the first quarter, led by a drop in exports and business investments, and the data foreshadows a weakening outlook for growth and inflation as firms continue to scale back on production and employment in an effort to weather the first global recession since World War II. A report by the Federal Labor Agency showed unemployment rose for the sixth consecutive month in April to 3.46M as the economy lost another 58K jobs from the previous month, which pushed the jobless rate to 8.3% from 8.1% in March, while retail spending unexpectedly dropped 1.0% in March as households face a weakening labor market. Despite the downturn in domestic demands, industrial outputs held steady in March to end a six-month slump, while factory orders unexpectedly increased in March for the first time in seven months, which raised hopes that the worst of the economic downturn has passed. Moreover, the IFO business confidence survey bounced back from a 26-year low in April, while exports unexpectedly increased 0.7% in March, and signs of stabilization may lead investors to raise the outlook for future growth as policymakers continue to take unprecedented steps to stimulate the ailing economy. The European Central Bank lowered the overnight lending rate by 25bp earlier this month to a record-low of 1.00%, and said that the Governing Council has ‘agreed in principle’ to utilize nonstandard tools to manage monetary policy as the board attempts to put a floor on the interest rate however, as council member Ewald Nowotny anticipates the ECB’s growth forecast to fall lower in June, comments from the central bank could reinforce a dour outlook for future policy as President Trichet expect negative price growth ‘for some months around mid-year.’ Moreover, as the Governing Council fails to meet on common ground, the lack of decisive action paired with expectations for further easing is likely to weigh on the single-currency over the near-term but nevertheless, as risk trends continue to drive price action in the foreign exchange market, a rise in market sentiment could lead the euro higher as investors increase their appetite for risk.
Trading the given event risk favors a bullish outlook for the single-currency as investor confidence is anticipated to improve in May, and price action following the release could warrant a long euro trade as market participants move into higher risk/reward investments. Therefore, an in-line print or a rise above 20.0 should lead the euro higher, and we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance), and this risk will establish our first target. Our second target will be based on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
In contrast, expectations for further easing paired with a weakening outlook for growth and inflation may lead investors to lower their outlook for the future, and an unexpected drop in the ZEW survey could weigh on the exchange rate as the economic downturn in the region intensifies. As a result, an unexpected drop to 2.0 or lower would lead us to hold a bearish outlook for the single currency, and we will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.
