In October, the ZEW Economic Sentiment Index in the Euro Area increased marginally to -59.7 from -60.7 in September as investor confidence increased in Europe's most industrialized economy. In October 2022, the Indicator of Economic Sentiment for Germany increased to -59.2 from the 14-year low of -61.9 the previous month, while the present conditions subindex declined to -72.2 from -60.5.
The European Central Bank (ECB) options are limited in light of the most recent CPI reading. The ECB's case for continuing to raise rates in pursuit of its 2% target may be strengthened by today's stronger ZEW statistics. The concern is that by doing this, the central bank could risk sending the economy back into a recession, which would be indicated by the dropping ZEW current conditions print. On the other hand, if the central bank does nothing, the euro may lose further ground to the dollar.
As a reliable leading indicator, the ZEW Economic Sentiment number represents an average of institutional investors' and analysts' six-month economic forecasts. Since the sector relies heavily on the predictions of future financial conditions made by highly knowledgeable people as a result of their employment, the data is highly significant.
As the ECB enters its pre-meeting blackout period on Thursday, today's data print and tomorrow's final CPI announcement will be crucial. The central bank is aiming for its 2% target, and the markets are pricing in a 90% chance of another 75bp increase at its meeting next week. ECB policymaker Isabel Schnabel will speak to us later in the day, and it is anticipated that she will maintain the rhetoric of rate increases despite the fragility of the Eurozone economies.
The pair first reacted by moving 20 pip higher. Prior to the report release, the pair lost 30 or so pips in European trade after yesterday's rise, and 1H price action suggests a further fall.
The negative slump will continue if the price stays below the long-term trendline that is located near parity and around 0.9900. Rallies may be seen by bears as a chance for stronger positioning. Depending on the monetary policy easing cycles used by the Federal Reserve and the ECB, a persistent break of parity might call the negative trend into doubt.
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