Global macro overview for 18/10/017:

Estimates from the German ZEW Economic Sentiment index prepared by the Mannheim Institute were worse than expected. The rating component of the German ZEW Current Situation index was 87.0 points (previously: 87.9 points) against the expected increase of 0.6 points. Another disappointment was the German ZEW Economic Sentiment index (17.6 points, consensus: 20.0 points, previously: 17.0 points), moreover, the indicator still remains below the long-term average of 23.8 points.

The ZEW President Professor Achim Wambach commented on the data: "The improved outlook for the coming six months is not least the result of the surprisingly positive growth figures seen in the previous months. In August, figures for both production and incoming orders were significantly better than expected. The framework conditions for German exports, which have already seen a significant rise, are further improved by positive growth figures for Europe. The fact that the inflation rate is rising again, and expected to climb further, equally points towards a positive economic development in Germany, making a change in the ECB's monetary policy more likely".

In conclusion, the sentiment among the German survey participants remains on elevated levels as the German economy is still seen as expanding, albeit at a slower pace. The economic growth in the whole Eurozone is anticipated despite recent Catalan referendum uncertainty and growing unemployment rates among young adults in Spain, Portugal, and Italy. Moreover, ZEW is yet another economic think-thank which is expecting a change in ECB monetary policy by an interest rate hike or a decrease in the quantitative easing program. The question remains how much of this anticipation has already been discounted by markets?

Let's now take a look at the EUR/USD technical picture at the daily time frame. There is a clear Head and Shoulder pattern at the end of the rally from the level of 1.0335 with a horizontal neckline at the level of 1.1660. Breakout below this level would directly expose the next important technical support to test at the level of 1.1489., but the more probable target is even lower, at the level of 1.1294.