EUR/USD: Rangeplay continues ahead of key German data

EUR/USD is lacking a clear directional bias for the fifth straight day.

The pair charted a Doji candle – a sign of indecision – last Tuesday and has remained trapped largely in a narrow range of 1.1250-1.1167 ever since.

German yield curve inverts

The spread between the German 10-year and three-month Bund yields fell below zero on Aug. 6 and stood at -0.036 basis points on Monday.

Even so, the downside in EUR/USD has been restricted around 1.1167. The EUR's resilience could be associated with the escalating US-China trade tensions, protests in Hong Kong and US-Iran tensions.

After all, the European Central Bank is running a negative interest rate policy and the entire German yield curve is offering negative returns for the first time on record. So, many observers believe the EUR is a funding currency - the one which rises during risk-off and is used to fund purchases of risk assets during improve risk appetite.

So, the EUR could continue to defend 1.1167 if the risk-off worsens. The common currency, however, may pierce the lower edge of the recent trading range if the German data disappoints expectations.

Focus on German data

The ZEW survey scheduled for release at 09:00 GMT is expected to show the Economic Sentiment deteriorated to -30 index points in August from July's reading of -24. Meanwhile, Current Situation is forecasted to drop to -7 from -1.1.

If the ZEW survey matches estimates or print below estimates, then markets may price in greater odds of an aggressive ECB easing in the near term by offering the EUR across the board.

Apart from ZEW data, the EUR pair may also take cues from the German inflation number scheduled for release at 06:00 GMT. In the American session, the focus would shift to the US Consumer Price Index.

• US inflation preview: Expect a disappointment – and downing of the dollar

Technical levels