The European Central Bank’s negotiated wage growth indicator is crucial for assessing the Euro’s strength. Economists at ING suggest that a decrease in wage pressure could lead to a further reduction in long positions on the Euro.

It wouldn’t be unexpected to see solid support around the 1.0700 mark.

Our experts anticipate a year-on-year wage growth rate of 4.4% to 4.5%, slightly lower than market expectations. This indicator has been steadily increasing since mid-2022, so even a slight decline would likely be welcomed by the ECB. The decision on whether to cut rates in June will depend on the first quarter GDP data, including detailed wage information in April, and the negotiated wage indicator in May. This is because the second quarter GDP figures will be released after the June meeting.

Despite the Euro having a notably negative interest rate differential compared to the Dollar, it remains moderately overbought (+7% of open interest) in the G10 space. If the ECB’s wage growth data falls below 4.5%, there might be some adjustment in Euro/Dollar positioning downwards. However, it’s expected that there will be strong support around the 1.0700 level.

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