• EUR/USD hit fresh annual lows just above 1.0700 on Monday as risk-off flows saw the buck strengthen across the board.
• Ahead of a busy week of US and Eurozone GDP and inflation data, bears continue to target the 2020 lows.  

EUR/USD has stabilised at fresh annual lows just to the north of the 1.0700 level in early Monday US trade, as the US dollar gains across the board amid the distinctly risk-off tone to the broader market trade. At current levels in the 1.0720s, EUR/USD trades with losses of about 0.7% on the day, which would mark the worst day for the pair since 5 April, with the pair seeing losses on a similar scale to GBP/USD, but less severe than other more risk-sensitive G10/USD majors.

ECB sources cited by Reuters over the weekend highlight a sense of urgency being felt by many ECB policymakers to end net QE purchases as soon as possible and hinting towards the possibility of multiple rate hikes before the end of the year from July or August failed to lift the euro on Monday. As far as EUR/USD traders are concerned, the ECB’s hawkish shift in recent weeks towards a preference to ending QE and a start to rate hikes in Q3 has been negated by a comparatively larger hawkish shift from the Fed.

That explains to a large part why EUR/USD has been able to sustain lasting rallies, with a fragile risk appetite backdrop and elevated European geopolitical/economic risks associated with the Russo-Ukraine war also weighing. Eurozone and US GDP numbers are out later in the week and are unlikely to distract from the above noted broader narratives.

US March Core PCE inflation data and preliminary April Eurozone Consumer Price Inflation figures will be of more interest, with both expected to show still very elevated inflation levels that continue to argue in favour of Fed and ECB monetary tightening. EUR/USD are likely to look to fade any rallies, with many short-term bears looking for the pair to test 2020 lows in the 1.0630 area sometime in the coming days/weeks.