Markets anticipate collapse in ZEW Europe survey

A strong loss of economic momentum

Recent sentiment indicators show a dramatic drop in economic confidence during the height of the trade war. The University of Michigan’s consumer sentiment index hit 50.8 last Friday, its second-lowest level this century. Meanwhile, Europe’s Sentix index experienced its second-largest decline ever, reaching recession-like readings.

Volatility in polls and markets go hand in hand

Sentiment indices and markets are closely linked. The recent surge in volatility, comparable to the three most stressful events of this century (Covid in 2020, the 2008 financial crisis, and 9/11), therefore weighs heavily on survey results. Sentiment levels have also dropped to lows typically seen during recessions.

It's raining on the wet for the economy, as uncertainty has been high in recent months and continues to rise; The US Trade Policy Uncertainty Index has reached historic highs, well above 2018’s US-China trade war.

ZEW survey due tomorrow

In this environment, the ZEW analyst survey is set to be released tomorrow at 10am (UK time). This report shows analysts' expectations for economic sentiment, stock markets, currencies, and interest rates across various economies. Markets anticipate a sharp drop in the index for both Germany and Europe, which would erase the Q1 2025 recovery driven by Germany’s political stability and public spending packages.

^{EUR/USD on weekly chart with ATR (14), CMC Markets platform 04/14/25}

Given the sharp decline in European surveys, it's uncertain whether EUR/USD can sustain its recent rally and break through two key resistance levels: the zone from $1.1214 to $1.1275 and the long-term downtrend. Likewise, it remains to be seen if the DAX can hold its rebound and stay above the underlying uptrend.

^{Germany 40 on daily chart with MACD, CMC Market platform 04/14/25}

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