EUR/USD: On the defensive ahead of German GDP and US CPI release

• The rejection at the bearish 5-day SMA indicates the EUR is on the defensive below 1.13.
• An above-forecast German and Eurozone GDP may be of little help as Italy-EU standoff continues.
• The currency pair looks set to create another lower high around 1.13 if the US CPI betters estimates, reinforcing the Fed’s calls for restrictive interest rate policy.

The EUR/USD is currently flatlined at 1.1290, having clocked a high of 1.1321 in Asia.

The failure to hold onto gains above the downward sloping (bearish) 5-day simple moving average (SMA) validates the bearish setup indicated by the series of lower highs and lower lows and the negative crossover between the 5-, 10-day SMAs.

So, it seems safe to say that the pair is on the defensive ahead of the key data releases – German and Eurozone GDP and US CPI.

German data, in particular, is likely to show the economy contracted 0.1 percent quarter-on-quarter in the September quarter, following a 0.5 percent expansion in the second quarter. An above-forecast reading may put a bid under the EUR. The resulting gains, however, could be short-lived as Italy has defied the European Commission (EC) by sticking to its big-spending budget plan.

In response, the EU may initiate the excessive deficit procedure, in which case the Italian government bond yields could rise sharply in the EUR-negative manner.

Further, the EUR/USD could drop sharply if the US consumer price index (CPI), due today at 13:30 GMT, beats estimates by a big margin, forcing markets to price in the prospects of restrictive (above-neutral interest rates) monetary policy in the US.

The bearish pressure, however, would weaken if the EUR somehow manages to climb the descending 10-day SMA.

EUR/USD Technical Levels