EUR/USD traded lower Tuesday despite German February ZEW data indicating a brighter economic future, as investors appear more focused on upcoming U.S. PCE data and technicals which highlight downside risks.

January core PCE USPCEM=ECI, a favorite inflation gauge of the Federal Reserve, is due Feb.
24.
Month-on-month estimates are expected at +0.4% versus +0.3% in December.
An upside surprise could indicate rising inflation has returned and disinflation has faded.
Investors would then lean towards the Fed hiking more than is currently priced in by short-term rates markets EDZ3, FFU3.

The dollar would likely rally against euro as German-U.S.
2-year yield spreads, which EUR/USD is positively correlated with, would widen to increase the dollar's yield advantage and therefore make the greenback more attractive to investors.

Technicals highlight downside risks for EUR/USD.
The pair trades below the 10- and 55-day moving averages as well as the daily cloud top.
Falling daily and monthly RSIs imply downside momentum remains.
February's monthly inverted hammer candle and consolidation of the drop from the Feb.
2 daily high reinforce the bearish signals.

EUR/USD may trade a tight range until PCE risk passes but risks for a move toward the 200-DMA remain elevated.

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