How to trade German ZEW Economic Sentiment

How to trade German ZEW Economic Sentiment

German ZEW Economic Sentiment data is an index derived from a survey of German institutional investors and analysts. An index reading above zero suggests positive economic sentiment, while a reading below zero suggests negative economic sentiment.

The data is released on the second or third week of every month and is considered a leading indicator of economic health. The data is expected to have a medium to high short-term impact on German financial markets.

Consensus estimates suggest that the latest German ZEW Economic Sentiment index will show a reading of ‘-38’. While this would imply market pessimism, it would be an improvement in sentiment highlighted from the previous reading of ‘-44.1’.

Markets are however more concerned about whether the data is better or worse than expectated. In turn a reading higher (less negative) than -38 could see a favourable short term market reaction, while a lower reading (more negative) than the expected -38, could see an unfavorable market reaction.

Trader might look to trading the Germany 40 index to capitalise on the reaction to the news scheduled for release imminently.

Germany 30: technical view

The hourly chart of the Germany 30 shows the 20-period simple moving average (SMA) to be trading below the 50SMA. This suggests a slight bias to the downside for the short to medium term. The index price is however trading in a near-term range between levels 12,325 (support) and 12,425 (resistance).

The slight bearish bias to the index, suggests that a worse than expected reading from the ZEW Sentiment data, could see traders position themselves for a move back to support at 12,325, using a close above the hourly high as a stop loss measure.

Alternatively, a better than expected ZEW Sentiment reading could see a move back to the 12,425-resistance level. In lieu of the negative lie of the 20SMA and 50SMA, it might be preferable to see a break above the 12,425 level before considering long positioning on the index.

IG client sentiment

At the time of writing (10am 17 September 2019), 69% of IG clients with open position on the Germany 30 expected the price to fall, while 31% of clients with open positions on the index expected to the price to rise.