Euro struggles near 1.1600 amid firm USD; looks to Eurozone HICP for some impetus

The EUR/USD pair struggles to capitalize on the overnight bounce from the 100-day Simple Moving Average (SMA), near the 1.1575-1.1580 region, or a one-and-a-half-week low, and drifts lower during the Asian session on Tuesday. Spot prices currently trade around the 1.1600 mark, down nearly 0.10% for the day, amid modest US Dollar (USD) strength as traders now look to the preliminary reading of the Eurozone Harmonized Index of Consumer Prices (HICP).

Economists expect Eurozone inflation to move higher in August amid elevated energy prices, making a September rate increase by the European Central Bank (ECB) all but certain. The expectations were lifted by the German Consumer Price Index (CPI) inflation data, which rose to 2.9% YoY in August from 2.8% in the previous month. Moreover, ECB executive board member Isabel Schnabel has made a clear case for another rate increase, suggesting that the immediate market reaction to the report is more likely to be muted.

Later during the North American session, traders will take cues from the US economic docket – featuring the ISM Manufacturing PMI and JOLTS Job Openings data. In the meantime, US Federal Reserve (Fed) Chair Kevin Warsh's comments last Friday lifted market bets for an imminent interest rate hike, which, along with geopolitical uncertainties, help revive demand for the safe-haven USD following the previous day's modest decline. This, in turn, is seen as a key factor exerting some downward pressure on the EUR/USD pair.

However, USD bulls might refrain from placing aggressive bets and opt to wait for the crucial US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. Nevertheless, the fundamental backdrop might continue to act as a tailwind for the Greenback, suggesting that any intraday move up in the EUR/USD pair is more likely to be sold into.

EUR/USD daily chart

Technical Analysis

Against the backdrop of the recent failure to find acceptance above the 50% Fibonacci retracement level of the January-June fall, a break below the 100-day Simple Moving Average (SMA) will be seen as a key trigger for EUR/USD bears. Spot prices might then decline to the 23.6% Fibo. retracement at 1.1501. A deeper slide would expose the broader structural floor at the Fibonacci cycle low near 1.1323.

On the topside, the 38.2% Fibo. retracement at 1.1611 is acting as immediate overhead resistance. A daily close above the said barrier would be needed to ease immediate downside pressure and open the way toward the 1.1700 and 1.1789 retracement barriers.