Yesterday we posted a couple of market updates about the important economic events of the week and the ZEW economic sentiment was the first on the timetable. These sort of events might not move the price immediately because of short term noise in the market, such as the market sentiment towards other currencies. The positive sentiment for the Dollar muted the effect of this data in EUR/USD today, although the numbers were way off the consensus.
The German ZEW numbers beat the expectation by 2 points; last month the economic sentiment in Germany was 0.5 points, which shows a very low level of optimism. This month the sentiment grew to 6.2 ZEW points. The Eurozone ZEW sentiment grew even faster this month, from 5.4 to 12.3 points. That´s a pretty high level of optimism which we haven´t seen in recent months. I guess, now that the initial Brexit shock is over, those Europeans feel more confident than ever about doing business.
So yes, these numbers might not have moved the forex market right now, but they sure are another brick on the pillars of the economic sentiment that´s building for the Euro. Last week the Euro jumped more than 100 pips on a few "comments" from an ECB official, which we don´t even know if they were true. That was a signal that the market is not so convinced on Euro shorts anymore.
We have seen some improving data from Europe in the last few months and today´s ZEW numbers are another piece of the puzzle. For those who are old enough to remember, the US economic data started to turn positive by the end of 2013, which was followed by a shift in FED´s monetary policy from loosening to tightening the rope, and then the sentiment turned around for the buck. The USD uptrend is now more than two years old.
We´re seeing the beginning of the same scenario take place in the Euro. The positive economic data is starting to accumulate, which will push the ECB to start tapering. But before that, the rhetoric will start to change, which will change the market sentiment as well. Last week´s unofficial comment which sent the Euro surging, might be a tactic used by the ECB to slowly start reversing the rhetoric without causing massive shocks.
So, be prepared and don´t get caught when the sentiment and the trend in the Euro change. Right now, we don´t exactly know when that might happen but we´ll be here with you throughout this process and the signals will get clearer as time goes by.
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