EUR/USD - Focus on German CPI, risk reversals retreat on bearish price action

• Focus on German CPI and US core PCE.
• Risk reversals retreat from 4-month high.
• Bearish pin bar reversal confirmed.

Inflation differential is set to hog the limelight today. German preliminary data due at 13:00 GMT is expected to show the cost of living as represented by the consumer price index increased 0.3 percent month-on-month in November. That takes the annualized reading to 1.7 percent from the previous figure of 1.5 percent.

An uptick in inflation could boost the single currency. It is worth noting that markets may price-in a better-than-expected reading well in advance if the regional CPI numbers tick higher.

Also, the gains (on the back of strong CPI) in the EUR could be short-lived if the US GDP due at 13:30 GMT betters estimates.

That said, the EUR/USD pair is on the back foot ahead of the data release, says the decline in the risk reversals and the bearish price action.

Risk reversals decline amid bearish pin bar reversal confirmation

The one-month 25 delta risk reversals gauge retreated yesterday to 0.412 from the previous day's four-month high of 0.55. The decline indicates a slight deterioration in demand for EUR calls amid bearish price action - Monday's bearish pin bar candle was followed by a big red candle on Tuesday. The spot also closed below Friday's low of 1.1837.

EUR/USD Technical Outlook

FXStreet Chief Analyst Valeria Bednarik writes, "the EUR/USD pair seems technically poised to extend its decline in the short term, as in the 4 hours chart, the pair settle below its 20 SMA for the first time in a week, while the Momentum indicator entered negative territory, with a strong bearish slope. The RSI indicator, however, holds around 53, indicating that selling interest remains limited and that the ongoing decline could be understood as corrective. Below 1.1860, the downward corrective movement can extend further, toward the 1.1820/30 region, where buying interest will likely re-appear."

Support levels: 1.1860 1.1825 1.1780

Resistance levels: 1.1920 1.1960 1.2000