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EUR/USD Boosted as German Economic Sentiment Soars

EUR/USD Boosted as German Economic Sentiment Soars

Nick Cawley, Senior Strategist

EUR Talking Points

- EUR boosted after optimistic ZEW sentiment indicators.

- German PMI and IFO releases will hit the screens before the latest ECB monetary policy announcement.

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EUR Jumps on Strong German Sentiment Indicators Ahead of the ECB

The latest German ZEW economic indicators show Europe’s growth engine in robust health. January’s current situation indicator jumped to 95.2 against expectations of a rise to 89.5 and a prior month’s 89.2, while the expectations index rose to 20.4 against expectations of 17.7 and a prior month’s reading of 17.4.

“The latest survey results reveal an optimistic outlook for the German economy in the first six months of 2018. With 95.2 out of 100 points, this is the most positive assessment of the current economic situation since the introduction of the survey in December 1991. Private consumption, which was the most important driver of economic growth in 2017, is likely to continue to stimulate growth in the coming six months according to the survey participants. The assessment of the global economic environment in Europe and the USA is also much more favourable than it was at the end of 2017,” according to ZEW President Professor Achim Wambach.

EUR traders will now wait for this Thursday’s ECB monetary policy meeting and the subsequent press conference to see if the central bank gives any clues on the timetable for reducing or finishing the current quantitative easing program. Aside from today’s strong figures, the ECB will be closely watching Wednesday’s provisional PMI releases for January and Thursday morning’s IFO confidence and sentiment indicators.

EUR/USD Price Chart One Minute Timeframe (January 23, 2018)

Chart by IG

EUR/USD May Reverse Lower Despite Short Positions

IG Client Sentiment show 32.8% of traders are net-long EUR/USD with the ratio of traders short to long at 2.05 to 1. The number of traders net-long is 16.1% higher than yesterday and 3.8% higher from last week, while the number of traders net-short is 5.9% higher than yesterday and 3.1% higher from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EURUSD price trend may soon reverse lower despite the fact traders remain net-short.

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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