Grim data out of China are not helping EUR/USD get out of its bearish trap, and the pair is back below 1.0700 after a very short-lived rebound. Domestically, inflation figures in the eurozone are very important to watch from an ECB perspective.

Yesterday, Spanish inflation slowed more than expected, from 4.1% to 3.2%, with core inflation also declining (to 6.1%) for a third consecutive month. French and German figures are released today, and a broad-based deceleration in inflation is also expected, while eurozone-wide data are published tomorrow.

One issue that the euro is facing at the moment is that markets are fully pricing in two more ECB rate hikes by September, and it would probably take a rather substantial upward surprise in inflation figures to push hawkish expectations beyond that point. If anything, risks appear skewed towards some dovish repricing – and a negative euro impact – today should France and Germany follow Spain in showing a faster-than-expected slowdown in inflation.

At this stage, and given ongoing USD strength, EUR/USD may soon test 1.0600.