The Euro is likely to look past what could be a disappointing outcome on Germany’s ZEW investor confidence gauge before this week’s EU leaders’ summit.

Talking Points

German ZEW May Surprise Lower But Euro Follow-Through Unlikely
US Dollar May Rise as S&P 500 Futures Point to Risk-Averse Mood

December’s German ZEW Survey of investor confidence is in focus on the European economic calendar. Forecasts suggest the forward-looking Expectations index will continue to moderate, showing sentiment remains net negative but by a smaller margin. The gauge has closely tracked Italian bond yields, suggesting the evolution of the Eurozone debt crisis is the key trend-setter.

Rates on the benchmark Italian 10-year debt have edged higher this month, pointing to a pickup in funding stress and warning the ZEW reading may fall short of expectations. While this may put near-term downward pressure on the Euro, follow-through is likely to prove limited. Indeed, yields themselves are a far timelier indicator of investors’ confidence in Eurozone crisis containment efforts than the ZEW reading. Furthermore, traders are unlikely to commit to a firm directional bias until the outcome of this week’s EU Leaders’ summit.

On the sentiment front, S&P 500 futures are pointing lower, arguing for a risk-off mood heading into European trading hours and hinting the safety-linked US Dollar may have scope to advance against most of its top counterparts. Trading was muted in the overnight session, with the major currencies locked in narrow consolidation ranges.

Asia Session: What Happened

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