EUR/USD flatlines below mid-year 1.1100 ahead of Eurozone CPI, US macro data

• EUR/USD has no firm direction as traders wait for Eurozone inflation data before placing new bets.
• Fed Chairman Jerome Powell’s remarks on Monday support the USD and cap the major.
• Bets on more rate cuts by the ECB are helping to keep a lid on the pair ahead of key dates.

The EUR/USD pair is struggling to gain any meaningful traction following the previous day’s pullback from the vicinity of its 14-month peak – levels just above the 1.1200 mark and oscillating in a narrow band during the Asian session on Tuesday. Spot prices are currently trading around the 1.1135-1.1140 area, largely unchanged on the day, as traders eagerly await the release of Eurozone inflation data before placing directional bets.

The flash version is expected to show that the Eurozone Consumer Price Index (CPI) likely fell below the European Central Bank’s (ECB) 2% target in September. Amid a drop in German CPI to its lowest level since February 2021, a softer eurozone CPI print will reaffirm bets for a 25bps rate cut at the ECB’s next policy meeting in October. Conversely, the reaction to a higher reading is likely to remain limited amid modest US dollar (USD) strength, suggesting that the path of least resistance for the EUR/USD pair is to the upside.

Federal Reserve (Fed) Chairman Jerome Powell took a more dovish tone on Monday and said he sees just two additional 25-basis-point interest rate cuts this year as a benchmark for whether the economy will perform as expected. Investors reacted quickly and reduced bets for more aggressive policy easing by the US central bank. This, along with the risk of further escalation in geopolitical tensions in the Middle East and wider conflict in the region, is helping the safe-haven greenback build on the previous day’s positive rebound from its July 2023 low.

Later in the early North American session, traders will take cues from the US economic file – featuring the release of ISM Manufacturing PMI and JOLTS Job Openings data. Apart from that, speeches from a large number of influential FOMC members will boost USD demand and provide a significant boost to the EUR/USD pair, which remains confined in a familiar sustained range for the past two weeks or so. However, the fundamental context along with recent repeated failures to find support above the 1.1200 mark warrants caution for the bulls.