EUR/USD keeps the red below mid-1.0800s, over two-week low on softer Euro Zone CPI

• EUR/USD drifts lower for the third straight day and drops to over a two-week low on Friday.
• The softer Euro Zone consumer inflation figures fail to impress the Euro bulls or lend support.
• The USD hits a fresh three-week high and contributes to the slide ahead of the US inflation data.

The EUR/USD pair attracts fresh sellers following a modest intraday uptick to the 1.0875 region on Friday and turns lower for the third successive day. Spot prices drop to over a two-week low following the release of the Euro Zone consumer inflation figures and trade around the 1.0840-1.0835 region during the early part of the European session.

The preliminary report published by Eurostat showed that the annual Euro Zone Harmonised Index of Consumer Prices (HICP) climbed 0.3% in June as compared to a flat reading anticipated. This, however, was offset by a sharp deceleration in the yearly rate to 5.5% from 6.1% in the previous month. Adding to this, the Core HICP rose by 0.3% MoM and edged higher to 5.4% on a yearly basis, missing consensus estimates. The data reaffirms bets for another 25 bps lift-off by the European Central Bank (ECB) in July, albeit fails to impress the Euro bulls or lend any support to the EUR/USD pair in the wake of worries about economic headwinds stemming from rising borrowing costs.

The US Dollar (USD), on the other hand, hits a fresh three-week high and remains supported by the Federal Reserve's (Fed) hawkish outlook, signalling that interest rates may still need to rise as much as 50 bps by the end of this year. The outlook was reinforced by the upbeat US macro data released on Thursday and Fed Chair Jerome Powell's hawkish remarks earlier this week.  This, in turn, continues to push the US Treasury bond yields higher, which, in turn, underpins the USD and further contributes to the offered tone surrounding the EUR/USD pair.

With the latest leg down, spot prices have dropped nearly 150 pips from the weekly high touched on Tuesday and moved back closer to the 100-day Simple Moving Average (SMA). Any further decline, however, seems limited as traders now seem to wait on the sidelines ahead of the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - due later during the early North American session. The crucial data should influence the USD price dynamics and provide some meaningful impetus to the EUR/USD pair on the last day of the week.

Technical levels to watch