EUR: Don't be fooled by lower headline wages – ING

Euro bulls have had to overlook some soft activity indicators recently, and we doubt there are any expectations for a near-term recovery in the eurozone’s growth outlook, ING’s FX strategist Francesco Pesole notes.

Solid and stable EUR/USD bullish momentum

“The question is whether the European Central Bank will react with faster easing due to slow growth. The answer to that depends on inflation and wage dynamics, which have so far argued against the doves.”

“Today’s ECB Negotiated Wages Indicator is a key release; the risk is that we see another disappointing print for the ECB after German wage figures were higher than expected. The first quarter print was 4.7% quarter-on-quarter, and while the headline number may decline, that may be down to one-off factors, and a closer look at the report may show the kind of underlying wage resilience that worries the ECB.”  

“We have seen solid and stable EUR/USD bullish momentum and given the risks of a hawkish repricing in ECB rate expectations (at -70bp by year-end, they are still quite dovish), we retain a positive bias on the pair. The short-term fair value level has risen to around 1.13 in our calculations, so there is no strong technical impairment for another leg higher, in our view.”