EUR/USD has been weathering a modest pullback after stalling at 1.12, helped by short-term flow dynamics that typically favor the dollar at corporate month-end, but it could extend the retreat if the next round of euro zone inflation readings surprise on the downside.

The European Central Bank are expected to cut rates in 25bp increments at the September and December meetings 0#ECBWATCH.

However, in light of a significantly weaker Q2 negotiated wage print – falling to 3.6% versus 4.7% in Q1 – which has pushed back against fears of a wage price spiral, the combination of softer inflation figures would likely raise the risk of an October cut, which stands at a 60% probability.

For now, EUR/USD continues to find support at the 1.11 handle, which also protects the 200-week MA at 1.1067.
While there has been a lack of catalysts to change the general trend in the dollar, the euro is unlikely to be a sustainable alternative with the growth picture less than ideal as evidenced by the latest PMI data.

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