As a seasoned investment manager, I can confirm that Euro bulls have been resilient in the face of recent soft activity indicators. Despite this, there is little hope for a quick recovery in the eurozone’s growth prospects, according to ING’s FX strategist Francesco Pesole.
Analyzing the Solid and Stable EUR/USD Bullish Momentum
“The real question now is whether the European Central Bank will respond by implementing faster easing measures given the sluggish growth. The decision on this matter will heavily rely on inflation and wage trends, which have not been favorable for the doves,” explains Pesole.
Today’s release of the ECB Negotiated Wages Indicator holds significant importance. There is a concern that we might witness another disappointing figure following the higher-than-expected German wage data. While the first quarter print showed a 4.7% increase quarter-on-quarter, any potential decline in the headline number could be attributed to one-off factors. A deeper analysis of the report might reveal underlying wage resilience that could unsettle the ECB.
“The EUR/USD bullish momentum remains solid and stable. With the looming risk of a hawkish repricing in ECB rate expectations (currently at -70bp by year-end, indicating a dovish stance), we maintain a positive outlook on the pair. Our calculations suggest a short-term fair value level of around 1.13, indicating no significant technical barriers to further upward movement,” reassures Pesole.
Analysis and Breakdown:
Despite challenges in the eurozone’s growth outlook, Euro bulls remain confident in their positions. The European Central Bank’s response to the slow growth will be crucial and dependent on inflation and wage dynamics. Today’s release of the ECB Negotiated Wages Indicator will shed light on the situation, with potential implications for the ECB’s future actions.
Investors should keep a close eye on the EUR/USD pair, as solid bullish momentum persists. With the possibility of a shift in ECB rate expectations, there is optimism for further gains. The short-term fair value level indicates room for additional upside potential.