Inflation data, ZEW Survey key for EUR, but the bigger picture for currency markets dominated by Bernanke

UPDATE: Euro boosted by strong ZEW data, benign Eurozone inflation. Read about it here.

The euro (Currency:EUR) has suffered losses against the Australian dollar today, however for now markets are largely calm ahead of today's inflation data.

A look at the latest spot exchange rates show:

• The euro dollar exchange rate is 0.07 pct higher at 1.3071.
• The euro pound exchange rate is 0.11 pct higher at 0.8662.
• The euro Australian dollar exchange rate is 0.8 pct lower at 1.4249.

NB: The above quotes are taken from the wholesale spot markets, your bank will affix their own discretionary spread to the figures. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering you more currency. Please learn more here.

The outlook for the euro exchange rate today

For the euro, the ZEW Survey and inflation data will be closely watched today; consensus estimates are for a reading of 31.8 according to Alpari UK.

However, to confuse us, Lloyds Bank Research say: "The German ZEW survey is forecast to have risen for a third consecutive month in July to 39 from 38.5. This fits in with the broad improvement seen in other surveys of German economic sentiment."

UniCredit Bank see the euro moving sideways regardless of the outcome: "EUR-USD is seen trading sideways in the 1.30-1.31 band again today. A slightly firmer German ZEW survey this morning is likely to be offset by higher US IP data in the afternoon, favouring more seesawing."

On the inflation front we have the Consumer Price Index (YoY) (Jun) and Consumer Price Index - Core (YoY) (Jun) dominating proceedings. Both are released at 10AM London time.

Analysts are expecting CPI at 1.6 pct and core CPI at 1.2 pct.

US dollar rally called into question ahead of Bernanke testimony

The most important event risk this week for the financial markets will be Bernanke's semi-annual testimony on the economy and monetary policy on Wednesday.  

"Following last week's dovish comments and yesterday's weaker than expected U.S. retail sales report, some traders may feel compelled to reduce their U.S. dollar positions ahead of the Fed Chairman's speech," says Kathy Lien at BK Asset Management.  

According to the House Financial Services Committee, the prepared portion of Bernanke's testimony will be released at 8:30am ET on Wednesday instead of the usual 10am.

Apparently "This change will allow members of the Financial Services Committee the opportunity to review the testimony and the report before the hearing begins."  

"In other words, it will give members of Congress more time to pick apart Bernanke's plans and prepare their discerning questions. The U.S. dollar may have ended the day higher against the Japanese Yen, Canadian dollar and Swiss Franc but its losses against the Australian and New Zealand dollars and its inability to rally against euro and sterling is a sign of hesitation in the FX market," says Lien.