The split in the ECB Council over monetary policy is grounded on (still) ambiguous EU economic data. The ECB hawks apparently need further proof that the measures that have been taken to date ARE NOT enough.
In that light, the Zew indicators due to be released in a matter of hours will bring further light to suggest that confidence in a rebound is likely seasonal in nature, that sophisticated German people polled by the Zew are despairing over the tight grip of Germans over the Bundesbank, err. . . the ECB.
The Zew - Economic Sentiment for the EU is expected to come at +1, compared to -64 in Jul 08. So at first glance this looks like the start of a rebound. Perhaps, but more likely this is due to seasonal factors that have risen sharply once a year only to fall dramatically thereafter.
The Zew - Current Situation for Germany shows a more somber picture of the mood among informed German investors and analysts - in what is seen as a forward looking barometer of confidence.
This indicator is expected to come in at -90. Interestingly enough, from Oct 08 through Feb 09, the market consensus consistently underestimated the intensity of the contraction in this indicator. Only last month, both the consensus and the actual were on par.
The euro started the week on an off note and is struggling to keep near the 1.30 level. The daily EURUSD close for Monday fell below an important support line dating back to late Oct 08, opening the door for substantial weakness below the 1.28 level.
From a fundamental perspective, our proprietary FMV indicator is very clear showing a euro that pierced this week a key FMV support line at 1.3050 for the first time since early March 09.
As we see the current scenario for EURUSD, and strictly speaking from a multi-day perspective, the odds for selling EURUSD are more favorable than owning euros from a fundamental, technical and upcoming news release perspective.