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Firstly, it’s important to state that this survey accounts for sentiment from around 350 economists and analysts regarding the prospects for Germany over the coming six months. We also need to remember that the sharp increase from 4.1 to 11.0 seems to be a reflection of the aggressive balance sheet expansion the ECB has detailed and the potential for full-blown QE.
It should also be said that while there has been improvement, the index (at 11.0) is still 84% below the year’s peak. For now, I don’t think this pick up in optimism will actually transcend into actual economic growth and certainly not inflation. EUR/USD did rally a touch on the news but the big buying actually took place prior to the announcement. The DAX, on the other hand, continues to look strong.
On the daily chart, the pair looks to have found a short-term bottom. A break of the 38.2% retracement of the October to November sell-off at $1.2558 could be interesting. A subsequent break and close of the August downtrend at $1.2588, could see a further position squeeze to the October high of 1.2887. Given my longer-term EUR view, I would be entering more aggressive shorts into here.
Personally, I would be flat here (if looking purely at the daily) and waiting to see how the pair behaves around the $1.2588 level. A daily close above this resistance could suggest a stronger move higher. Stochastic and RSI oscillators are showing better upside momentum. I don’t see the ZEW changing the economic landscape. It does, however, suggest that the ECB’s liquidity measure could be well received by the market.
I have to say, price action on the daily chart looks very bullish. As you can see on the candles, there is good buying support on any pullbacks of late and that seems to be the trade, with many pouncing on any dips. We have also seen a higher high yesterday, so the bulls are firmly in control of this market and a move to 9900 looks on the cards on present news flow and sentiment.
The oscillators highlight this trend and once again suggest pullbacks look like good buying opportunities (in my opinion), especially as the index is not technically overbought despite the strong run higher of late.