The ZEW will release its German Economic Sentiment Index and the Current Situation Index – reflecting institutional investors' opinions for the next six months – during the early European session this Tuesday.
The headline Economic Sentiment Index is expected to worsen to -27.3 in October as compared to -22.5 reading booked in the previous month. Meanwhile, the Current Situation Sub-Index is also expected to deteriorate further to -26.0 from -19.9 posted in September.
The impact these developments have on price are relative to the clearly shown resistance right at the 50-day simple moving average(SMA). The 50-day SMA plays an important role here, as price has consistently tested this level over time and pulled back down. When price closes above the 50-day SMA, there are high chances of price moving higher as this will serve as a potential support to price.
In addition, the bearish hidden divergence set up on the daily chart also indicates underlying weakness found during retracements in a downtrend. This is nice to see during price retests of previous highs. “Sell the rallies” which means to get ready to open a short position. The bearish hidden divergence is a type of divergence that is spotted when price trend in a different direction from the oscillator(RSI).
When price is trending Lower-High(LH) and the oscillator is trending Higher-High(HH), this is a clear sign of weakness and test of the previous support.
Technicals suggest that a breakdown from the 0.5fibonacci retracement ratio, will call for a move to test 0.618fib down to 0.786fib from $1.09680 down to $1.09296.
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