EUR/USD drops to multi-week lows near 1.0450 amid risk-aversion

 




EUR/USD has continued to push lower early Monday after having lost more than 200 pips last week. The pair trades below 1.0500 in the European morning and the technical outlook suggests that there could be a technical correction before the next leg lower.

On Friday, the data from the US showed that annual inflation, as measured by the Consumer Price Index (CPI), jumped to its highest level in four decades at 8.6% in May. Following the European Central Bank's (ECB) cautious on the rate outlook, the hot inflation data from the US reminded investors of the policy divergence between the Fed and the ECB.

Although some Fed policymakers said that it could be appropriate to pause rate hikes in September, market participants don't think this is a likely scenario after CPI readings. According to the CME Group FedWatch Tool, markets fully price in a total of 150 basis points (bps) of Fed rate hikes in the next three meetings.

Meanwhile, the intense flight to safety provides an additional boost to the greenback and further weighs on EUR/USD. With the US stock index futures losing between 1.5% and 2.3%, the US Dollar Index continue to stretch higher toward 105.00.

There won't be any data releases featured in the US economic docket on Monday and the risk perception should continue to drive the market action.

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