MAY 20 Euro-zone ZEW Survey (MAY) (9:00 GMT; 05:00 EST)
Expected: -44.2
Previous: -44.8

German ZEW Survey (MAY) (9:00 GMT; 05:00 EST)
Expected: -37.0
Previous: -40.7

What Are The Markets Facing?

Investor sentiment throughout the Euro-zone is anticipate to improve very slightly in May as the ZEW survey is forecasted to edge up to -44.2 from -44.8. Nevertheless, this is not very far from the record low seen last month, and this news will not be entirely surprising as the European Commission’s most recent surveys of economic, industrial, and services sector confidence all dropped more than expected. Indeed, building price pressures are hurting disposable income for consumers and denting profit margins for businesses. However, the fact that equity markets in Europe have stabilized to a certain degree and given European Central Bank President Trichet’s optimism on the economy following the central banks last meeting may help to turn sentiment a bit more positive. Indeed, Trichet said during his monthly press conference that “the economic fundamentals of the euro area are sound, and incoming macroeconomic data continue to point to moderate but ongoing real GDP growth” with the help of “both domestic and foreign demand.” Another major issue for investors is the value of the euro, as its rapid appreciation to record highs hurts prospects for export growth. On the other hand, the strong currency is helping to offset import price inflation, which is likely why Trichet has only resorted to mild jawboning when it comes to discussing its value.

Bonds – 10-Year German Bund Futures

Bunds have fallen quite a bit from Fibonacci resistance at 115.15 and have run directly into support at 113.10, as any possibility of a significant rebound in the contract appears to have faded in the near-term. Upcoming Euro-zone economic releases may shake up Bunds, as the release of the German ZEW survey could weigh the contract down below 113, especially if the data is significantly better than expected. On the other hand, if investor sentiment proves to be more pessimistic than expected, the contract could easily jump up to the 114 level.

FX – EUR/USD

The EUR/USD decline from the record highs just above 1.60 has bounced from the 38.2 percent fib of 1.4437 – 1.6018 at 1.5400/15, and the pair continues to look bullish as Technical Strategist Jamie Saettele mentioned in his Daily Technical Report, “The push through 1.5570 confirms that our bullish stance is correct (and also completes an inverse head and shoulders). The rally from 1.5283 could be a series of 1st and 2nd waves or wave i of a diagonal. Either way, look higher near term. Risk can moved to 1.5396, but support should be strong in the 1.5533/55 zone.” Looking ahead, the release of the Euro-zone and German ZEW surveys could lead the EUR/USD higher for another test of near-term resistance at 1.5650 as investor confidence is forecasted to improve slightly. On the other hand, a surprisingly weak release like we saw last month along with bullish US dollar sentiment could weigh the euro down and keep EUR/USD within range.

Equities – Xetra DAX Index

The Xetra DAX index has done nothing but consolidate within a rising wedge over the past few weeks, but the solid gains witnessed over the past few days may ultimately target the 200 SMA at 7,337. However, it may only be a matter of time before this bearish formation resolves with a break below near-term support near the 7,000 level. While risk trends may remain a greater driver of the index, the upcoming release of the German ZEW survey could spark volatility. Indeed, the ZEW survey is forecasted to reflect a mild improvement, which would be especially bullish for equities. However, if risk aversion comes back into play globally, the ZEW figure may not be able to do much for the DAX as the index would likely pull back sharply toward 7,000.

Terri Belkas is a Currency Strategist at FXCM.