EUR/USD gathered bullish momentum in the early American session on Tuesday and climbed above 1.0800. The pair extended its uptrend and touched its highest level since April 10 on Wednesday. Although the near-term technical outlook points to overbought conditions for the pair, buyers could retain control in case inflation data from the US come in below expectations.

The US Bureau of Labor Statistics (BLS) reported on Tuesday that the Producer Price Index (PPI) rose 2.2% on a yearly basis in April, following the 1.8% increase recorded in March. This print matched the market expectation but failed to provide a lasting boost to the US Dollar (USD). Meanwhile, Fedral Reserve (Fed) Chairman Jerome Powell reiterated that they might have to stick to the restrictive policy for longer than expected to bring inflation down toward the 2% target. 

Later in the day, the BLS will release the Consumer Price Index (CPI) data for April. Markets expect the core CPI to rise 0.3% on a monthly basis. A reading of 0.4% or higher could cause investors to refrain from pricing in a rate cut in September and allow the USD to gather strength. On the other hand, a soft monthly core CPI print of 0.2% or lower could cause the USD selloff to pick up steam.

According to the CME FedWatch Tool, investors are currently pricing in a nearly 35% probability that the Fed will leave the policy rate unchanged in September. This market positioning suggests that the USD is facing a two-way risk ahead of the data release.