EUR/USD: In stasis ahead of key German, Eurozone data and Fed

• EUR/USD is stuck around 1.1155  ahead of Eurozone inflation data.
• The EUR will likely break lower if Eurozone’s inflation, due at 09:00 GMT, reinforces dovish ECB expectations.
• Losses could be short-lived if the Federal Reserve cuts and signals more easing on the way.

EUR/USD is lacking a clear directional bias ahead of the key macro data releases.

German data due at 06:00 GMT is expected to show the consumer spending, as represented by retail sales, rose 0.5%   month-on-month in June, following a 0.6% drop in May. Further, the data due at 07:55 GMT is expected to show the German economy added 2K jobs in July and the seasonally adjusted jobless rate steadied at 5%.

Meanwhile, the Eurozone’s Consumer Price Index (CPI) is forecast to slip to 1.1% year on year in the preliminary read for July against 1.3% in June.  Further, economists expect Eurozone’s GDP growth to have halved in the second quarter – 0.2% against 0.4% in the first quarter. Both data sets are scheduled for release at 09:00 GMT.

A dismal data would strengthen the case for aggressive easing by the European Central Bank (ECB), sending the EUR/USD pair lower, possibly below 1.11 (July 25 low), ahead of the US Federal Open Market Committee (FOMC) rate decision.

Fed rate cut priced in

The markets have priced in a 25 basis point rate cut. EUR/USD will likely pick up a strong bid and rise above 1.12 if the Federal Reserve (Fed) Chairman counters the hawkish message sent by dissenters to rate cuts, if any, reinforcing a dovish outlook.

In that case, markets would begin pricing the possibility of another rate cut before the year-end, sending the treasury yields and the US Dollar lower.

EUR/USD, however, risks falling to 1.10 if a weaker-than-expected Eurozone data is followed by a not-so-dovish Fed.

At press time, the pair is trading largely unchanged on the day at 1.1154.

Technical levels