The German ZEW is a survey that is used to measure the economic health of the German nation. It is completed by analysts and Investors in order to highlight their level of confidence in the economy. Last month the reading fell short of the mark registering just 10.0 against a forecast 14.8. This month however the index rebounded reaching 17.0 against a predicted 12.8. The index has regrettably fell short of its long-term average of 23.0 potentially also contributing to the lack of Euro to USD volatility.
The German ZEW posted growth in both private and public sectors demonstrating renewed confidence amongst investors. The eurozone economy has benefitted considerably in 2017 from Germanys strengthening economy. As the largest contributor, it has allowed the zone to recover significantly over the last twelve months.
Typically, when the German ZEW surpasses its target figure so comfortably you would see a spike in Euro to USD. However, the movement has been minimal as investors look to see what the ECB implements in the coming months. Currently Germany is also going through the election process, with Merkel attempting to secure her fourth term in power and potentially contributing an element of uncertainty for Germany and the Eurozone.
Is the Euro Over Extended Now?
With Draghi attesting just a while ago that Euro pricing was not a target for the European Central Bank you would have imagined that the single currency could have benefitted from the positive data.
However, many investors now perceive that the Euro to USD is oversold with the currency pair sitting at around a three year high. The Euro to USD is currently circulating around the 1.20; a clear phycological number for investors who may now look to take profit, subject to the FED announcement later this week.
Likewise, the German ZEW did very little to perturb the GBP which has enjoyed a steady climb following the Bank of England’s admission that inflation needed to be curbed. The GBP To EUR has enjoyed extended gains and qualified as one of the best performing currencies last week.
Following the German ZEW comfortably breaking its target of 12.8 and reaching 17.0 there was very little reaction from the Euro to USD rate. The currency pair has continued to strengthen and currently sits at 1.2004. More definitive movement will surely be seen in the run up to the FED meeting scheduled later today.
The GBP to Euro was effected in a more noticeable manner seeing the GBP to Euro rate dip from 1.1291 to 1.1243. The slight correction was short lived and GBP to Euro is now comfortably above the 1.13 mark.
Markets now await the latest round of FOMC economic projections, The FED rate decision and the statement that follows. In particular, markets will try to interpret the statement for clues relating to the reduction of the USA’s balance sheet. Whilst it remains unlikely that rates will be increased, traders will search for clues as to when this can happen, with the current likely hood of a rate rise in December standing at around 58%.
