EUR/USD retreats towards 1.0100 as traders await German data, US inflation

• EUR/USD bulls struggle after refreshing one-month high, pokes short-term support of late.
• Pre-data anxiety, cautious mood ahead of China’s return seem to challenge immediate upside.
• Cautious optimism surrounding Ukraine-Russia tussle, ECB moves underpin bullish bias.
• Germany’s final revision of inflation, ZEW sentiment data and US CPI for August will be crucial for immediate direction.

EUR/USD portrays the typical pre-data consolidation as the major currency pair retreats from the monthly peak to 1.0120 during Tuesday’s Asian session. In doing so, the pair traders keep their eyes on the all-important US Consumer Price Index (CPI) data amid hopes of witnessing easy price pressure. Also important are the second-tier German data.

Hawkish comments from the European Central Bank (ECB) policymakers joined positive updates from the Ukraine-Russia battlegrounds to underpin the EUR/USD run-up on Monday. The quote also cheered an absence of China and firmer equities, not to forget the light calendar.

While a slew of ECB policymakers has favored higher rates during the weekend, Vice President Luis de Guindos was the latest to convey his optimism while saying, “Any GDP contraction will be less than in the euro crisis.” The policymaker also mentioned, “I don't know how much rates will climb.”

Elsewhere, updates that Ukraine is gaining success in pushing back the Russian military from some of its areas seem to have underpinned the market’s cautious optimism, even as the same raised the fears of Russia’s harsh retaliation. On the same line could be the hopes of more stimulus from major economies like China, the US, the UK and Europe. Furthermore, the latest news from the Wall Street Journal (WSJ) suggesting that the US gas prices are down for the 13^th consecutive week also eased the market’s pressure and favored the risk-on mood, as well as the gold price.

Alternatively, fears of Germany’s economic slowdown join hawkish Fedspeak to weigh on the EUR/USD prices. On Monday, Germany's Ifo Institute announced that it revised its 2023 growth forecast to -0.3% from 3.5% in June. The institute further noted that the annual inflation expectation for 2023 got revised higher to 9.3% from June's forecast of 6%. For 2022, Ifo now sees the economy growing by 1.6%, down from 2.5% in June, and forecasts 8.1% inflation (6.8% in June), as reported by Reuters.

Amid these plays, Wall Street closed higher and the US Treasury yields also refreshed the multi-day tops while the US Dollar Index (DXY) printed a four-day downtrend to fall to the lowest levels in a fortnight, around 108.30 at the latest.

Moving on, the final readings of Germany’s August month Harmonized Index of Consumer Prices (HICP), expected to confirm 0.4% MoM initial estimations, will precede the ZEW sentiment data for September for the bloc and for Germany to direct immediate EUR/USD moves. Following that, US CPI for August becomes crucial after the latest softness in the price pressure. The forecasts suggest the headline number ease to -0.1% MoM versus 0.0% prior while the CPI ex Food & Energy is likely to stay unchanged at 0.3% MoM. If the inflation numbers arrive softer the US dollar may have a further downside to track, which in turn can help the EUR/USD to remain firmer.

Also read: US CPI Preview: Dollar set to climb on low core expectations, three scenarios

Technical analysis

A one-week-old ascending trend line joins 200-SMA around 1.0100 to restrict short-term EUR/USD downside. The recovery moves, however, needs validation from a downward sloping resistance line from June 27, close to 1.0190 by the press time.