There are still downside risks to the EUR/USD as markets focus on US inflation data

On Tuesday (August 12), the euro/dollar showed a clear volatile trend during the day, with prices rising, falling and consolidating rapidly at different times. The intraday low fell to 1.1600. Investors are waiting with bated breath for the release of US inflation data, which may reshape market expectations for the Federal Reserve's interest rate policy.

Consumer prices are forecast to rise 0.2 per cent month-on-month in July, down from 0.3 per cent in June, while year-on-year growth is expected to climb for the third straight month to 2.8 per cent. The core CPI is expected to remain stable at 0.3 per cent.

Despite persistent inflationary pressures, the market believes that the probability of the Federal Reserve cutting interest rates in September is close to 90%.

On trade, President Trump extended the truce with China for another 90 days to allow for further negotiations. Another focus is a meeting between Mr. Trump and his Russian counterpart on Friday that is expected to focus on a cease-fire agreement.

Excluding US inflation data, the eurozone's ZEW economic sentiment index fell from 36.1 to 25.1 in August, ahead of a speech by Federal Reserve officials later in the day that could provide more clues about monetary policy.

Francesco Pesole of ING said in a report that the European Central Bank (ECB) does include economic activity survey data in its economic assessment. If the ZEW index falls, the IFO index (especially the purchasing managers' index PMI) will also decline, and some dovish dissent within the ECB may re-emerge. Given the lack of public communication from the ECB in August, and the current inflation backdrop is still relatively mild, the above situation is more likely to come into focus in September. For now, the euro is still affected (albeit modestly) by news about Russia and the United States.

Francesco Pesole believes that today's US CPI data will push the EUR/USD exchange rate back below 1.16; if Friday's Putin-Trump summit produces few results, the exchange rate may even face the risk of testing the 1.150 support level.

technical analysis

(EUR/USD 4-hour chart, source: Internet)

On the 4-hour chart, EUR/USD is currently consolidating near the correction high. A fall below 1.1611 could trigger a downtrend towards 1.1520 and possibly even further to 1.1343. This bearish scenario is supported by the MACD indicator - the signal line, while still above the zero axis, has tilted sharply downward.

(EUR/USD 1-hour chart, source: Internet)

On the 1-hour chart, EUR/USD has completed a wave of downside shocks to 1.1611, and then rebounded to 1.1679, forming a consolidation range. Today, traders need to watch for a downside breakout, which may open a fifth wave of downside trends, targeting 1.1520. After briefly backtesting 1.1611 (from below), it may further fall to 1.1444, with a final target of 1.1343. The Stochastic indicator reinforces this outlook, with its signal line below 80 and moving down towards 20.

conclusion

There is still a risk of further downside for EUR/USD under the influence of US inflation data. If it falls below 1.1611, selling pressure may intensify; and if the CPI data is unexpected, it may prompt the market to reassess its expectations for the Federal Reserve interest rate.

At 18:57 Beijing time, the euro/dollar was trading at 1.1608/09, down 0.05%.