EUR/USD falls towards 1.0500 on risk aversion and mixed US data.

• The euro posts significant losses against the USD, down 1.81% on the week.
• Stagflation looms over US inflation and consumer pessimism grows.
• EUR/USD Price Forecast: A daily close below 1.0532 would see the EUR/USD pair slump to retest recent years lows around 1.0340.

The EUR/USD falls sharply and approaches 1.0500, a level not seen since mid-May, following a report on US inflation that beat estimates and opened the door for an aggressive Fed tightening cycle. 1.0521, the EUR/USD It is trading near three-week lows, down 0.82% during the American session.

US inflation nearing 9% paves way for aggressive Fed

Risk aversion took hold of the markets after the publication of the consumer price index (CPI) for May, which is getting closer to reaching 9% year-on-year after stabilizing for two months around 8.3%. In the same report, the core CPI, which excludes volatile items like food and energy, rose 6% year-on-year, up from 5.9%.

The USD is rising on expectations that the US Federal Reserve will continue to raise interest rates faster. Reflecting the above are the 10-year US Treasury yields, which rise to 3,178%, 23 basis points, which supports the dollar. The US dollar index reclaimed the 104,000 mark and is gaining almost 2%.

Analysts at Capital Economics wrote: “The rise in energy prices this month means headline inflation will remain close to 8.6% in June. Combined with the continued strength of the latest activity data, this reinforces the case. of the Fed hawks to continue the series of 50 basis point rate hikes through September and beyond, or even to increase the size of the rate hikes at upcoming meetings.”

“The larger increases in core prices a year ago mean core inflation continues to ease to 6.0% from 6.2%, but there is very little in the details of this report to suggest that inflationary pressures are easing,” wrote Capital Economics.

Late in the day, the University of Michigan released preliminary consumer sentiment figures for June. The survey fell to 50.2, down from 58.4 in May, showing consumer pessimism. Furthermore, inflation expectations rise to 5.4% from 5.3% in the previous study.

Now, with the ECB meeting in the rearview mirror and high inflation in the US, the scenario of the Fed’s hike of 50 basis points in June, July and September is in sight. Therefore, in the short term, further dollar strength is expected, opening the door for further losses and a retest of EUR/USD’s 2022 lows.

EUR/USD Price Forecast: Technical Outlook

EUR/USD remains on the defensive, struggling against daily lows from May 20 at 1.0532. A daily close below the latter leaves the major currency vulnerable to further selling pressure. The RSI around 40, with enough space before reaching oversold conditions, reinforces the scenario mentioned above.

Therefore, the first support for the EUR/USD would be 1.0500. A break below would expose the May 19 daily low at 1.0460. Once surpassed, the EUR/USD could fall to challenge the low of the year at 1.0340.

Technical levels