EUR/USD ebbs lower after failing to reclaim 1.1300 level, US CPI in focus

• EUR/USD has been ebbing lower since a failed attemtp to move back above 1.1300 as US inflation data is eyed.
• Analysts suggested pre-data USD strength suggests markets are positioning for an upside surprise.
• The latest ECB sources, as per MNI, were ignored by FX markets.

After failing an earlier attempt to get back above the 1.1300 level, EUR/USD has been ebbing lower in the run-up to US Consumer Price Inflation data at 1330GMT. The pair currently trades close to 1.1270, slightly above earlier session lows in the 1.1260s, and down about 0.2% on the session. The move is largely being driven by pre-data positioning in the US dollar, rather than any localised euro weakness. According to Chris Weston, head of research at Pepperstone, "judging by the way the dollar is trading ... I'd argue traders are positioning for a higher CPI print which cements a view that the Fed will increase the pace of tapering its QE programme.”

ECB sources per MNI that suggested the bank will bump up its Asset Purchase Programme from the current €20B per month in purchases to somewhere between €40B and €60B in purchases did not move the needle for the euro. Indeed, separate sources speaking to other newswires earlier in the week suggest something similar. Nonetheless, the question as to what the bank will do with its QE programme after the expiration of the PEPP in March remains the top theme for next week’s ECB meeting.

Market focus is now firmly on US inflation numbers and FX market volumes are unsurprisingly low as market participants keep their powder dry for now. In the run-up to the data, EUR/USD has been trading rangebound this week and has responded well to the technicals. To recap, the pair attempted to push back above a long-term downtrend that had been offering support until mid-November for the second time in as many weeks but again failed. Technically, that suggests the long-term momentum remains bearish. Traders will be keenly waiting to see if US inflation and next week’s Fed meeting adds further backing to the bearish narrative.