EUR/USD Forecast: Sellers dominate ahead of key German data

EUR/USD has lost its traction, touching its lowest level in over two months below 1.0700 early Wednesday, pressured by the renewed US Dollar strength. The pair remains fragile as investors await inflation data from Germany and headlines surrounding the US debt-limit bill.

The negative shift seen in risk sentiment helps the USD find demand as a safe haven mid-week. Late Tuesday, the House Rules Committee advanced the debt-ceiling bill to the House by an uncomfortably close vote of 7 to 6. Nevertheless, many hard-line Republicans voiced their opposition against the bill, reviving fears over a delay in the suspension of the debt-ceiling. In case the bill is approved by the House later in the day, a fresh leg of relief rally could hurt the USD and help EUR/USD stage a rebound. On the other hand, a deadlock in the House should allow the USD to preserve its strength.

Earlier in the day, data from France showed that the annual Consumer Price Index rose 6% in May, down sharply from the 6.9% increase recorded in April. This reading also fell short of the market expectation of 6.4%.

The Harmonized Index of Consumer Prices (HICP) in Germany is forecast to rise 6.8% on a yearly basis in May, compared to 7.6% in April. A soft HICP reading from Germany combined with softer-than-expected inflation reports from Spain and France could cause investors to reassess the European Central Bank's (ECB) interest-rate outlook and put additional weight on the Euro's shoulders. 

In the American session, JOLTS Job Openings data from the US will be looked upon for fresh impetus. Ahead of the ADP's private sector employment report and the US Bureau of Labor Statistics' Nonfarm Payrolls (NFP) data, however, investors are likely to pay closer attention to risk perception.

EUR/USD technical Analysis

EUR/USD returned with the descending regression channel and the Relative Strength Index (RSI) indicator on the four-hour chart fell below 40, highlighting sellers' dominance. On the downside, 1.0660 (mid-point of the descending channel) aligns as first support ahead of 1.0630 (lower-limit of the descending channel) and 1.0600 (psychological level).

If the pair manages to rise above 1.0700 (upper-limit of the descending channel) and starts using that level as support, it could attract buyers and extend its recovery toward 1.0750 (Fibonacci 61.8% retracement level of the latest uptrend, 50-period SMA).