EUR/USD clings to gains above 1.2100

• EUR/USD manages to bounce off earlier lows near 1.2090.
• German 10-year Bund yields rebound from -0.27%.
• EMU Industrial Production expanded 39.3% YoY in April.

The single currency starts the week slightly on the positive footing and motivating EUR/USD to regain the 1.2100 mark and above.

EUR/USD looks to USD, inflation

EUR/USD navigates a narrow range on Monday, rebounding from earlier lows in the 1.2090 region and keeping business above 1.2100 the figure so far in the European morning.

The pair so far tracks the side-lined theme in the greenback, while benchmark yields on both sides of the ocean stick to the consolidative in the lower bound of the recent range.

In fact, market participants are expected to keep the cautious note once again this week ahead of the key FOMC meeting on Wednesday and with the “transient” higher inflation narrative in the centre of the debate.

In the domestic docket, Industrial Production in the broader euro zone expanded at a monthly 0.8% during April and 39.3% over the last twelve months, both prints coming in above market consensus.

Nothing scheduled data wise in the NA session other than short-term bill auctions.

What to look for around EUR

EUR/USD manages to bounce of recent lows in the sub-1.2100 area, although it is forecast to remain somewhat vigilant ahead of the Fed event later this week and while market participants keep digesting the latest US inflation figures. In the meantime, support from the European currency comes in the form of auspicious results from fundamentals in the bloc coupled with higher morale, prospects of a strong rebound in the economic activity and the investors’ appetite for riskier assets.

Key events in the euro area this week: Final May Core CPI (Thursday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the vaccine rollout. Probable political effervescence around the EU Recovery Fund. German elections. Investors’ shift to European equities.

EUR/USD levels to watch

So far, spot is gaining 0.05% at 1.2114 and faces the next up barrier at 1.2266 (monthly high May 25) followed by 1.2300 (round level) and finally 1.2349 (2021 high Jan.6). On the downside, a breakdown of 1.2064 (23.6% Fibo retracement of the November-January rally) would target 1.2051 (weekly low May 13) en route to 1.1985 (monthly low May 5).