Talking Points:
- Euro-Zone ZEW Survey (Economic Sentiment) at negative -14.7 vs +20.2 prior
- German ZEW Survey (Economic Sentiment) at -6.8 vs 9.0 expected, lowest since 2012
- Euro little changed versus the US Dollar on the news
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The Euro was little changed versus the US Dollar (at the time this report was written) after today’s Euro-Zone ZEW Survey showed Financial market experts' sentiment concerning the Euro-Zone’s economy has plunged after the Brexit vote.
The Euro-Zone’s expectations sentiment figure printed negative -14.7, which is well below the prior +20.2 figure. The Current Situation Assessment declined slightly to -12.4 from the prior -10.0.
The German ZEW Survey of Economic Sentiment index fell to -6.8 from the prior 19.2 print, which was below the expectations for a +9.0 figure. This was the weakest reading since November 2012.
The German Current Situation number dropped as well to 49.8 from the prior 54.5 reading, below the expected 51.8 figure.
A reading above 0.0 indicates optimism, while below indicates pessimism. 220 analysts participated in the July survey.
Looking into the press release, ZEW said that the “Brexit” related uncertainty regarding consequences for the German economy is largely responsible for the decline in sentiment. ZEW remarked that concerns about the export prospects and the stability of the European banking and financial system are likely to be a burden on the economic outlook.
The weak figures seem to represent possible initial indications of spillover effects from the UK’s “Brexit” referendum on the Euro-Zone’s economy, at least when it comes to sentiment. The market seems to be underpricing these risks, and the subdued reaction by the Euro to the news might imply that participants are slightly holding back on clear conviction before the ECB monetary policy announcement and the Euro-Zone's Flash PMIs later the week, which could potentially provide data on businesses Brexit implications.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 44.1% of traders are long the EUR/USD at the time of writing, apparently trying to sell the pullback. The range bound trading condition appear to be in line with retail traders more successful periods (see the “Traits of Successful Traders” research), which could imply weakness ahead.
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EURUSD 5-Minute Chart: July 19, 2016
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
