EUR/USD – Little Acitivity as Markets Eye US Inflation Numbers

The euro is trading quietly on Tuesday, as the pair trades in the mid-1.33 range in the European session. Taking a look at today's fundamental events, there was more bad news out of the Eurozone, as Current Balance dropped sharply in July. In the US, we'll get a look at key inflation indicators, with the release of Core CPI and CPI. As well, Building Permits and Housing Starts are also on today's schedule.

With the US continuing to post low inflation levels, markets expectations have been low for key inflation indicators. CPI is expected to post a 0.1%, while the estimate for Core CPI stands at 0.2%. On Friday, PPI, the primary gauge of inflation in the manufacturing sector, slipped to 0.1%, down from 0.4% in July. This matched the estimate. Weak inflation is one reason why the Federal Reserve is in no rush to raise interest rates, as low inflation points to slack in the economy.

On the employment front, last week's Unemployment Claims came in higher than expected. The indicator climbed to 311 thousand, marking a six-week high. The estimate stood at 307 thousand. Employment indicators are being closely scrutinized by analysts, as the strength of the labor market is one of the most important factors influencing the Federal Reserve regarding the timing of an interest rate hike. A rate increase is expected by mid-2015, but stronger economic data, especially on the employment front, could hasten a move by the Fed. Meanwhile, consumer confidence and retail sales disappointed last week. This means that an improvement in the US labor market has not translated into stronger consumer confidence and spending, which are critical for economic growth.

Financial leaders and central bankers from around the world will gather in Jackson Hole, Wyoming for a conference which starts on Friday. This will be Janet Yellen's first appearance as Fed chair at the conference, and will undoubtedly be the star of the show. Yellen is expected to discuss the employment market rather than monetary policy, but the markets will be listening closely for any hints as to an interest rate hike.

Despite broad interest rate cuts by the ECB in June, the Eurozone continues to limp along, including Germany, the region's locomotive. Inflation and growth levels remain weak, as underscored by last week's GBP and inflation releases. French Preliminary GDP remained flat at 0.0%, unchanged from a month earlier. German Preliminary GDP slipped to -0.2%, the first contraction in the German economy since Q4 of 2012. Eurozone Flash GDP also weakened to -0.2%, down from 0.0% in the previous release. All three GDP releases missed their estimates, and the weak numbers could push the euro even lower. On the inflation front, the news is not good, as deflation is a growing concern. Last week, Eurozone Final CPI dipped to 0.4%, down from 0.5% a month earlier. As well, German and French inflation numbers remained weak.

With the Eurozone economy sputtering, it shouldn't come as a surprise that last week's confidence indicators pointed sharply downwards. German ZEW Economic Sentiment, a key release, took a tumble in July, falling to just 8.6 points, down from 27.1 points a month earlier. This was its lowest level since November 2012. Weakening confidence in the economy could lead to decreased spending and hiring and weigh on economic growth.

EUR/USD 1.3350 H: 1.3360 L: 1.3343