EURUSD Crashes Again, Drops to 2016 Lows

EURUSD Crashes Again, Drops to 2016 Lows
The pressure on the single currency is nowhere to end, pushing the EURUSD pair to new cycle lows below 1.04 for the first time since December 2016.
It looks like the parity - where the euro equals the dollar - might be reached this month. 

Inflation fears mounting

The consumer price index in the United States rose 8.3 % on a yearly basis in April, down from 8.5 percent in March but still higher than the 8.1 percent widely projected.

While this data indicated that inflation in the United States had peaked, it remained consistently high, indicating that the Federal Reserve's existing monetary policy intentions to hike interest rates rapidly in the months ahead will stay unchanged.

At each of the subsequent two Fed decisions, on June 15 and July 27, the market is fully priced for at least a half percentage point hike in the policy rate.

Today, US PPI inflation came out mixed, with the yearly change slowing slightly from 11.5% to 11.0%, somewhat higher than the 10.7% anticipated. The monthly gauge fell from 1.6% to 0.5%. At the same time, the core PPI index decelerated to 8.8%, down from 9.6%. 

"[Substantial] declines in the annual rate of inflation are unlikely to materialize until there are significant improvements in geopolitical tensions (that would get energy prices lower), supply chain strains, and labor market shortages," wrote ING's James Knightley in a note after the release. "Unfortunately, there is little sign of any of this happening anytime soon."

Parity soon?

The next target for bears is expected at 1.0350, where the lows of 2016 are. If that level is broken down, the next step could be at the mentioned parity between the euro and the USD - 1.00.

Alternatively, the euro must climb above 2020 lows at 1.0640 to cancel the immediate bearish pressure, with a possible relief rally toward 1.08.
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