EUR/USD: Upside momentum falters around 1.2150

• EUR/USD re-tests the 1.2150 level, retreats afterwards.
• Dollar, yields struggle for direction at the beginning of the week.
• Italian final CPI rose 0.4% MoM, 1.1% YoY in April.

The single currency looks to add to Friday’s gains and lifted EUR/USD to the 1.2150 region on Monday, just to lose some momentum soon afterwards.

EUR/USD focused on dollar, economic recovery

Following the strong gains recorded on Friday, EUR/USD starts the new trading week on a mixed mood, although still well above 1.2100 the figure and always against the backdrop of diminishing yields and alternating risk trends.

Friday’s strong advance was underpinned by the pick-up in German 10-year Bund yields to the vicinity of the -0.10% zone and the sell-off in the greenback after the higher inflation narrative deflated somewhat.

Looking at the broader picture, optimism on the gradual re-opening of economies in the Old Continent remains on the rise and propped up by the firmer pace of the vaccination campaign.

Earlier in the euro docket, final Italian inflation figures showed consumer prices rose at a monthly 0.4% and 1.1% vs. April 2020. In addition, ECB’s Board member E. McCaul is due to speak.

Across the pond, the NAHB Index will take centre stage later in the NA session followed by the NY Empire State Index and TIC Flows.

What to look for around EUR

EUR/USD closed last week on a strong footing well past 1.2100 the figure mainly on the back of the weakness surrounding the dollar and the strong bounce in yields of the German 10-year Bund. The generalized upbeat tone in the risk complex sustained the rebound in the pair, always in combination with the investors’ shift to the improved growth outlook in the Old Continent now that the vaccine campaign appears to have gained some serious pace and solid results from key fundamentals pari passu with the surging morale in the bloc.

Key events in the euro area this week: Advanced EMU Q1 GDP (Tuesday) – Final EMU April CPI (Wednesday) – German/EMU flash May PMIs, advanced Consumer Confidence (Friday).

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.

EUR/USD levels to watch

So far, spot is losing 0.06% at 1.2137 and a break below 1.1985 (monthly low May 5) would target 1.1953 (200-day SMA) en route to 1.1887 (61.8% Fibo of the November-January rally). On the other hand, the next up barrier emerges at 1.2181 (monthly high May 11) followed by 1.2243 (monthly high Feb.25) and finally 1.2349 (2021 high Jan.6).