German ZEW Adds Further Weakness to Euro

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Map of Europe
  • German ZEW misses drastically
  • Euro reaches towards the 1.08 level
  • Announcement further stokes flames of declining EUR

Early during the trading session on Tuesday, the German ZEW Economic Sentiment figures came out, a measurement of overall investor sentiment in the largest economy of the EU. Quite often a measurement and a forward-looking indicator, this number has quite some influence on the euro itself.

ZEW collapses

Economic Sentiment figures out of Germany came out at 8.7 during the early hours of Tuesday, much lower than the anticipated reading of 20. This shows a complete collapse of investor confidence in the largest economy of the European Union.

money is most certainly going to continue to flow out of the EU and into other places like the US

It should be noted that the EU also has a ZEW Economic Sentiment reading, which came out at 10.4, as opposed to the expected 21.3 for the month. It indicates just how weak sentiment is in the European Union and shows that money is most certainly going to continue to flow out of the EU and into other places like the US.

With the European Central Bank is already very loose with its monetary policy, questions now will arise as to whether or not they can do anything about current economic conditions. The reality is that the ECB has its hands tied at this point, so it’s difficult to imagine that the euro is going to get any significant amount of reprieve in the short term.

Euro falls drastically

EUR/USD 6-monthly chart

EUR/USD 6-monthly chart

Any fall in the value of the euro is impressive. After all, the market has fallen straight down over the last couple weeks and shows no signs of turning things back around, so it’s very likely that the market is going to continue to look for support underneath, perhaps down at the gap below at the 1.0750 level. Having said that, the market continues to struggle with finding its footing, and the fact that the euro has reached the 1.08 level shows just how soft this currency is.

Looking at this chart, you should also keep in mind that the US dollar is experiencing a lot of an inflow when it comes to capital because of fear around the world and the fact that the US economy is one of the strongest in the world.

Ultimately, this is a market that should eventually get some type of massive bounce, due to the fact that it is oversold, but that “dead cat bounce” needs to be sold into when it happens. This is a market that will see a lot of resistance at the 1.09 level above, and then the 1.10 level after that. Ultimately, there is no real argument for buying the euro, simply because it is “cheap” at these levels.

With that, the market very much looks like one that will offer plenty of opportunities if traders are patient enough. Jumping in here to start shorting is a recipe for taking serious losses. Simply looking for signs of exhaustion after short-term rallies probably remains the same play going forward as it has been for several months.

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