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Will the euro be sensitive to today’s ECB publication?

INVESTINGWill the euro be sensitive to today's ECB publication?

The stock markets on Monday didn’t inspire any emotions. The absence of Americans due to the President’s Day holiday also had an impact on low volatility in the currency market, reflected in the stable EUR/USD exchange rate just below 1.08. Dax consolidated after Friday’s falls. Gold marked a new local peak around 2022 USD/oz. Brent crude oil still resides within the technical resistance at 83.5 USD. Today, we will learn about the wage index for Q4 created by the ECB.

Attention over the past roughly 2 weeks has been focused on data from the USA. At a time when the calendar is quite sparse, and we will only get PMI indicators by Thursday and the minutes from the last FOMC meeting on Wednesday, investors’ attention today may be focused on the ECB’s wage index for the fourth quarter of 2023.

Recently, we observed a dovish change in moods among representatives of the European institution. Most of them, even those belonging to the “hawkish” camp, admitted that they are not against lowering interest rates in the near future. Policymakers clearly indicated that the wage situation’s development could play a significant role. The fact that wage growth is still too high is one of the last arguments against reducing rates in the near future.

Following a record high of the index in the third quarter, this new publication may bring slightly lower values. The monthly index that fell slightly lately suggests this. Both measures (quarterly and monthly) are correlated.

The euro may react to the publication. If data turns out lower, the common currency may come under downward pressure; otherwise, we are likely to see its strength. The index will be published at 11:00 Central European Time, and we won’t find it in the traditional macro calendar.

The EUR/USD exchange rate is currently in a place where the downward trend line runs, connecting the maxima from late December 2023 and early February. The candle pattern suggests a bounce. On the chart depicting 4-hour “candlesticks”, there is a formation of an inverted head with arms. The drop in the main currency pair, which lasted over 1.5 months, set a minimum around the horizontal support (1.0720), and where one of the key Fibonacci internal retracements (61.8 percent) falls.

On Friday around noon, Dax set a new historical record, soaring to around 17,254 points. However, the subsequent hours brought a decisive reversal, and at the end of the day, the index closed up 0.4 percent. Yesterday we witnessed consolidation. On the CFD contract chart, Friday’s candle is bearish, characterized by a long, upper shadow and a relatively narrow body. In trader’s jargon, it is called a “falling star”, which theoretically suggests a change in the trend. Sketching such a pattern in a critical area (the highest index in history) may mean a corrective decline is looming. At the moment, quotations reside within the horizontal support (17 100 points), and breaching this level may pave the way for a decline towards 16 870 points – the lows from February 1 and 13.

Łukasz Zembik Oanda TMS Brokers

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