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

Monday's day on the stock exchanges did not arouse any emotions. The absence of Americans due to the President's Day holiday also resulted in low volatility in the currency market, as evidenced by the stable EUR/USD rate just below 1,08.

Dax consolidated yesterday after Friday's declines. Gold set a new local peak around USD 2022/oz. Brent crude oil is still within the technical resistance at USD 83,5. Today we will learn the wage index created by the ECB for the fourth quarter.

Wage increase too high

For the last 2 weeks or so, the focus has been on US data. At a time when the calendar is quite poor and we will receive the PMI indicators only on Thursday and the minutes from the last FOMC meeting on Wednesday, investors' attention today may be focused on the ECB's wage indicator for the fourth quarter of 2023.

We have been observing recently dovish mood change among representatives of the European institution. Most of them, even those belonging to the "hawkish" camp, admitted that they were not against reducing interest rates in the near future. Policymakers have clearly indicated that wage developments may play an important role. The fact that wage growth is still too high is one of the last arguments against rate cuts in the near future.

After the record high level of the indicator in the third quarter, the latest one publication may bring slightly lower values. This is suggested by the monthly indicator, which has recently decreased slightly. Both measures (quarterly and monthly) are correlated.

The euro may react to the publication. If the data turns out to be lower, the common currency may come under downward pressure, otherwise we will probably see its strength. The indicator will be published at 11:00 CET and will not be found in the traditional macro calendar.

"Shooting star" before correction?

The EUR/USD rate is currently at a point where there is a downward trend line connecting the highs from the end of December 2023 and the beginning of February this year. The candlestick pattern suggests a reflection. On a chart showing 4-hour candles an inverted head and shoulders formation is visible. The declines of the main currency pair, which lasted over 1,5 months, set minimums near the horizontal support (1,0720) and in the place where one of the key Fibonacci internal retracements (61,8 percent).

Dax set a new historical record around noon on Friday and rose to a level of approximately 17 points. However, the following hours brought a decisive reverse and at the end of the day the index closed with a result of 254%. positive. Yesterday we observed consolidation. On the CFD chart, Friday's candle is bearish and is characterized by a long, upper shadow and a fairly narrow body. In trading jargon, it is called a "shooting star", which theoretically suggests a change in trend.

Drawing this type of pattern in a critical place (the index is the highest in history) may mean that a downward correction is coming. At the moment, the quotations are within horizontal support (17 points) and breaking this level may open the way to quotations towards 100 points. – lows on February 16 and 870.

Source: Łukasz Zembik, OANDA TMS Brokers