The Euro has come under pressure amid ongoing geopolitical tensions and concerns over the eurozone's economic outlook, with particular focus on the latest German ZEW Survey results. ING’s Francesco Pesole notes that while EUR/USD has remained resilient alongside risk sentiment despite unresolved Gulf tensions, the current levels may not be sustainable if there is a significant equity market correction. Pesole maintains a bearish-leaning view on EUR/USD, suggesting that a break above 1.180 is unlikely to hold and a retest of 1.170 is more probable, barring tangible progress towards a US-Iran peace deal [1].
The ZEW Survey for May was highly anticipated, with consensus expecting further deterioration in both the German Economic Sentiment Index and the Current Situation Index. Specifically, the Economic Sentiment Index was forecast to fall to -19.8 from -17.2 in April, while the Current Situation Sub-Index was expected to drop to -77.5 from -73.7 [2]. However, the actual release showed an unexpected improvement in the Economic Sentiment Index, which rose to -10.2 in May, defying expectations of a further decline [2].
Despite this positive surprise in the ZEW data, EUR/USD traded negatively ahead of the survey, influenced by heightened US-Iran tensions that increased demand for the US Dollar as a safe-haven asset [2]. Analysts noted that if the data had come in better than expected, it could have provided support for the Euro, with resistance levels identified at 1.1788 and 1.1800, and downside support at 1.1722 and further at 1.1685 and 1.1655 [2].
Pesole cautions that the ZEW surveys, while important, can be difficult to interpret in the current volatile geopolitical environment, but the overall message remains one of a worsening eurozone growth outlook [1]. He reiterates a bearish stance on EUR/USD unless there are concrete steps towards easing US-Iran tensions [1].
CONCLUSION
Despite an unexpected improvement in the German ZEW Economic Sentiment Index, the Euro remains under pressure due to persistent geopolitical risks and a broadly bearish outlook from analysts. Market participants are likely to remain cautious, with EUR/USD seen as vulnerable to further downside unless there is a significant shift in geopolitical developments or economic sentiment.