Inflation concerns continue to persist, capping gains in risky assets

A holiday in most parts of Europe is making for subdued trading on Monday, with the euro struggling to see a more robust recovery despite the prevailing risk-on tone across the global financial markets as the start of the week. 

Inflation concerns continue to persist, capping gains in risky assets ahead of another round of Fed speakers due in the coming days, while the focus will be on the US PCE deflator readings for April on Friday. Ahead of these events, traders could opt for a cautious tone, so both currencies and equities may see some mixed and volatility.

EURUSD dipped to the 1.2160 local support on Friday to turn marginally positive today as the greenback is mostly lower at the start of the week. Now, the euro struggles to get back above the 1.2200 figure that represents the key target for bulls. On the downside, below the mentioned lows, the 1.2125 area will come into market focus. That’s where last week’s lows arrive.

Now, the common currency treads water amid a lack of fresh catalysts, with holiday-thinned trading conditions adding to consolidation. It looks like the USD index recovery attempts could further cap the upside in the pair at this stage. Of note, the index has climbed back to the 90.00 area after a brief dip to 89.89. furthermore, the daily RSI has turned directionless in neutral territory, suggesting a weakening bullish bias. 

On the upside, late-February highs around 1.2245 remain the key resistance for the time being. If the pair manages to overcome the 1.2200 barrier any time soon, this area would come back into the market focus. It is possible that the European currency would attack these highs going into month-end trading later in the week on the condition that positive risk sentiment would prevail.


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