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  • EUR/USD is on the defensive, having dropped for the third straight day on Wednesday.
  • German recession fears are priced  to a greater extent. So, the EUR may rise sharply on upbeat data.
  • Weaker-than-expected German inflation could yield a break below key support at 1.1052.

EUR/USD fell for the third straight day on Wednesday, pouring cold water the over-optimism generated by last Friday’s big bullish engulfing candle.

As of writing, the pair is trading at 1.1083, representing marginal gains on the day. A convincing close above 1.1164 (Monday’s high) is needed to confirm a short-term bullish reversal. On the other hand, a close below last Friday’s low of 1.1052 may invite stronger selling pressure.

The direction of the breakout (above 1.1164 or below  1.1052) depends on the key German data scheduled for release today.

Focus on German labor and inflation data

The German labor market numbers for August are due for release at 06:00 GMT. The seasonally adjusted jobless rate is forecasted to remain steady at 5% in August. Meanwhile, the economy is predicted to have added 4,000 jobs in August, following a 1,000 addition in July.

The inflation data for August will be released at 12:00 GMT. The consumer price index (CPI) is forecasted to rise by 1.5% year-on-year, having risen by 1.7% in July.

That German economy is facing recession risks is generally accepted by now. The markets are also pricing in aggressive easing by the European Central Bank (ECB) next month.

Put simply, there is plenty of room for a rally in the EUR on the back of an upbeat data. The EUR/USD pair will likely fall below 1.1052 if the German inflation prints below estimates, reinforcing dovish ECB expectations.

A deeper drop to 1.10 could be seen if the US Gross Domestic Product Annualized (Q2) Preliminary betters estimates. That data is scheduled for release at 12:30 GMT.

Technical levels