The EUR/USD currency pair is under pressure as traders prepare for the release of the US Consumer Price Index (CPI) inflation figures. This data, scheduled for Wednesday, is expected to influence the Federal Reserve's monetary policy decisions.

Impact of Inflation Data on Monetary Policy

Analysts are closely watching the consensus forecast, which predicts a 0.27% increase in both the CPI and the underlying CPI. A higher-than-expected inflation reading could reduce the likelihood of a rate cut by the Fed in December, strengthening the dollar. Conversely, a lower-than-expected inflation figure would likely prompt the Fed to consider additional rate cuts, putting downward pressure on the dollar.

Importance of US Producer Price Index (PPI)

The release of the US Producer Price Index (PPI) on Thursday will also be closely scrutinized, as some components of the PPI are included in the Personal Consumption Expenditures (PCE) core index. The market is sensitive to economic indicators that could influence the Fed's approach to interest rates.

European Central Bank (ECB) Meeting

The European Central Bank (ECB) is also meeting on Thursday, but it is not expected to announce further rate cuts.

Trading Dynamics and Market Sentiment

The EUR/USD has been trading within a narrow range of approximately $1.06 to $1.04, and a breakout from this range is expected to determine short-term trading dynamics. Market sentiment is skewed towards short positions on the EUR/USD, indicating pessimism towards the euro. Traders should be aware of the potential for breakouts and shifts in sentiment, which could create risks and opportunities in the foreign exchange market.

Implications for US and European Economies

The upcoming inflation data will have implications for both the US and European economies and will shape monetary policy in the future.