The EUR/USD pair fell to a fresh cycle low below parity as the dollar soared across the board as risk-averse trading resumed following Wednesday’s US CPI volatility.
After hitting a 20-year low of 0.9952, the EUR/USD pair recovered some ground during the New York session and currently trades above the 1.0000 level. The US dollar index reached its highest level since December 2002, around 109.30.
Fed’s tightening expectations were fueled by June’s US Producer Price Index (PPI), which rose to 11.3% YoY, surpassing the market consensus of a 10.7% increase. The core inflation eased to 8.2% in the annual reading from 8.5% in May but also came in above the market forecast of 8.1%. Swaps markets are pricing in an 85.7% probability of a 100 bps hike for the next FOMC meeting.
Across the pond, the ECB faces the dilemma of rate hikes. For the next meeting, Christine Lagarde will try to convince the market participants that a 25 bps hike will be enough as they balance the trade-offs between policy goals and economic growth in the eurozone. Monetary policy divergences with the US will likely continue to weigh on the euro as it enters in price discovery zone below the parity level.
According to the daily chart, the short-term technical perspective for the EUR/USD remains bearish as the shared currency makes lower lows and technical indicators remain in negative territory. The RSI shows a negative slope and hasn’t yet corrected oversold readings, while the MACD shows a slight deceleration as it printed a lower red bar, all of which could lead to some consolidation over the last sessions of the week.
The current low at 0.9952 is the last support level before uncharted territory. Buyers could arise around the 0.9900 psychological level. On the upside, a break above the 1.0100 level could ease the immediate selling pressure and pave the way to the 20-day SMA currently at 1.0350.