EUR/USD Plunges As German ZEW Sentiment Falls Sharply

Summary:

The EUR/USD falls sharply after the German ZEW economic sentiment index plunged, with the research firm warning of significant risks to the German economy.

Disappointing German ZEW economic expectations on Tuesday caused the EUR/USD to plunge for the 8th day in a row. German ZEW economic sentiment fell from 63.3 to 40.4, while Eurozone economic sentiment index also fell from 61.2 to 42.7.

The ZEW firm warns that a possible 4th coronavirus wave from autumn or a slowdown in growth from China pose significant risks for the German economy.

The result was the third straight monthly drop and marks a multi-month low. The single currency was hit hard and buckled under the pressure from a greenback already carrying significant tailwinds from last Friday’s NFP and the hawkish comments from several Fed members about early tapering.

The EUR/USD is down 0.16% on the day.

Technical Outlook for EUR/USD

The breakout from the falling wedge was rejected at 1.18927, opening the door for the 8-day drop in the EUR/USD. This drop is now heading towards the support at 1.17036. A breakdown of this level opens the pathway for 1.16028 to come into view, with the 23 September/29 October 2020 lows at 1.16527 forming an intervening barrier.

On the flip side, a bounce on 1.17036 allows for a brief recovery that targets 1.17505. At that level, a resumption pursues the previous support targets. A break above this level opens the door towards 1.18008, with 1.18395 and 1.18927 as additional barriers.