The German ZEW Economic Sentiment (Zentrum fur Europaische Wirtschaftsforschung) is a survey of investors, economists and analysts. It is a monthly poll on their view of Germany’s economic outlook for the next 6 months.
As this economic indicator is closely monitored by many investors and analysts, it’s impact on forex trading can be significant.
As a survey of investors, economists and analysts, the sentiments presented may be derived from their working knowledge of the economy. Therefore, considering that these group of professionals from financial institutes and corporations require an intimate knowledge of the economy, the German ZEW Economic Sentiment is seen by many as a possible early indicator of economic health.
The result released is a simple indicator representing the final sentiment from the survey. This is done by obtaining the difference between bullish and bearish respondents. A negative figure suggests pessimism while a positive figure indicates optimism.
Impact On Forex Trading
Germany is the Euro Zone’s biggest economy and its output exceeds a quarter of the entire bloc’s. Therefore, this economic indicator has the potential to influence all the currencies connected to the Euro Zone. The most popular and prominent currency pair is the EUR/USD.
Possible Short Term Impact (Usually sentiment driven)
When results are better than expected, investors may react to it positively and thus create bullish pressure for the currency pair.
When results are worse than expected, investors may become risk averse and withdraw from the euro currency. This creates bearish pressure for the EUR/USD.
Possible Medium to Long Term Influence (Usually fundamentals driven)
Beyond a single month’s result, it is not unexpected that investors and analysts track the trend of the German ZEW Economic Sentiment. If the results are on a bearish trend, this may be an early indicator of impending economic challenges. On the other side of the equation, a bullish trend may indicate conducive economic conditions instead.
These different scenarios will then influence the market’s perception on the euro currency respectively.
The Bottom Line
Now that you have a better understanding of the German ZEW Economic Sentiment, acknowledge it’s importance to your forex trading journey and factor it in your forex trading plans.
Are the results bearish or bullish and does it fit into your assessment of the currency? Be sure to consider this analysis as you formulate your trading plans. It may provide insights to the possibilities of momentum and price action.
You can tune in to our regular forex forecasts where we explore the fundamental, sentimental and technical considerations of the currency pair. We also offer premium analysis where you can access vital information such as the influence analysis of interest rates, unemployment, sentiment and more.