- EUR/USD loses even more ground and approaches 1.0520 again.
- The US dollar index remains offered and approaches 104.00.
- The US CPI rose in May at the fastest pace in 40 years.
The European currency is under greater pressure and makes the EUR/USD drop back to the 1.0520 area on Friday, ie fresh 3-week lows.
EUR/USD weakens after US CPI
EUR/USD lost more ground after the greenback’s bullish trend was exacerbated in response to higher-than-expected US CPI inflation figures for May.
Indeed, the general CPI increased 1.0% month-on-month in May and 8.6% in the last twelve months. The core CPI, meanwhile, rose 6.0% from the previous year.
The publication of inflation figures in the US reaffirmed the idea of aggressive tightening by the Federal Reserve on the short-term horizon, with a rate hike of 50 basis points already priced in at the June and July meetings .
Additionally, Fed Funds futures are now targeting almost 3.00% by the end of 2022.
Later in the American session, the US consumer confidence index will be released.
What to watch out for around the euro
EUR/USD came under additional pressure in response to multi-decade highs in US inflation in May.
The resumption of the selling bias in the pair followed the acceleration of USD flows due to the now firmer conviction of a tighter policy from the Fed in the coming months.
EUR/USD remains far from out of the woods and is expected to continue to be at the mercy of dollar dynamics, geopolitical concerns and the divergence between the Fed and the ECB, while rising German yields, persistently high inflation in the euro zone and a decent pace of economic recovery in the region also support an improving mood around the euro.
For now, the pair is down 0.69% at 1.0542 and a break of 1.0521 (10th June monthly low) would target 1.0500 (round level) on the way to 1.0459 (18th May low). On the other hand, the immediate bullish barrier is located at 1.0786 (monthly high of May 30), followed by 1.0925 (100-day SMA) and finally 1.0936 (weekly high of April 21).
Source: Fx Street