EUR/USD falls sharply following new lockdowns, dovish Lagarde comments

The EUR/USD pair fell notably Friday, dropping below the 1.13 level as the situation in Europe is getting worse each day. 

Rising inflation combined with a deteriorating pandemic and ultra dovish ECB could lead to a lockdown-inflation spiral, eventually getting out of control.

Earlier in the session, data showed that German PPI inflation rocketed to 18.4% year-over-year, up from 14.2% previously. Moreover, the monthly change rose to 3.8% from 2.3% in September.

Additionally, the French unemployment rate worsened to 8.1% from 8.0% previously, against expectations of improvement to 7.8%. 

Traders paid attention to the ECB's head Cristine Lagarde speech, who once again reiterated that the conditions to raise rates are very unlikely to be satisfied next year (despite nearly 20% PPI inflation in Germany). 

From other news, Austria reimposed a complete lockdown for both vaccinated and unvaccinated people for at least ten days. Investors immediately started to price in another lockdown in Germany, as cases are skyrocketing there too.

However, it looks like there won't be a new lockdown in Germany (although nothing can be said with certainty in these times). "There is no discussion over a comprehensive lockdown," outgoing German Foreign Minister Heiko Maas said in an interview with Bild, adding that there is no legal base anymore for a national lockdown.

The next target for EUR/USD bears could be at June 2020 lows at 1.1170, while the significant level to watch will be at the psychological level of 1.10.

Alternatively, the single currency needs to climb above 1.14 to cancel the immediate bearish threat. Until then, rallies are expected to be sold, and bears remain in control.