FXStreet (Bali) - According to RBS FX Strategists, an upside surprise in Germany's inflation should be seen as an opportunity to add EUR short exposure ahead of the September ECB meeting.

Key Quotes

"Ahead of the Euro-area composite CPI estimate for August to be released on Friday, flash CPI estimates are released in Germany and Spain that should give an early indication of how the composite may change. ECB policy expectations are likely to be shaped by inflation releases through tomorrow and Friday, and a “sources” article citing unnamed ECB officials suggests that this week’s inflation data will largely determine whether the ECB takes action next week or remains on the sidelines."

"Still, regardless of where current inflation comes in, it is clear that medium-term inflation expectations have turned sharply lower in August. While certainly influenced by current inflation, the developments in medium-term inflation expectations may drive the ECB to change its language on the potential for additional action even if August inflation comes in above market expectations tomorrow and/or on Friday."

"As a result, if an upside surprise in inflation leads to a squeeze of well-subscribed short EUR positions, it may offer an opportunity to add to short EUR exposure ahead of the September ECB meeting."

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