• EUR/USD failed to capitalize on its bullish gap opening and retreated back below the 1.0900 mark.
• Concerns about the economic effect of the Russia-Ukraine crisis acted as a headwind for the euro.
• The Fed’s hawkish outlook, surging US bond yields underpinned the USD and further capped gains.
• The downside seems limited ahead of the US CPI report and the key ECB monetary policy meeting.

The EUR/USD pair surrendered its modest intraday gains and was last seen hovering near the lower end of its daily trading range, around the 1.0880-1.0875 region.

The pair kicked off the new week on a positive note and opened with modest bullish gap in reaction to the incumbent French President Emmanuel Macron's lead in the first round of the presidential election. That said, a combination of factors kept a lid on any further gains for the EUR/USD pair, instead attracted fresh sellers at higher levels.

Investors remain concerned that the European economy, which relies heavily on Russia to meet its energy needs, will suffer the most from the spillover effect of the Ukraine crisis. Apart from this, the underlying strong bullish sentiment surrounding the US dollar failed to assist the EUR/USD pair to capitalize on its move to the 1.0925 region.

The USD stood tall near the highest level since May 2020 and continued drawing support from the Fed's hawkish outlook. In fact, the minutes of the March FOMC meeting released last week showed that many participants were prepared to raise the interest rate by 50 bps in the next few meetings amid worries about the continuous rise in inflationary pressures.  

Moreover, speculations that the recent surge in commodity prices would put upward pressure on the already elevated consumer prices pushed the US Treasury bond yields to a fresh multi-year peak. This, along with a generally weaker tone around the equity markets, further benefitted the greenback's safe-haven status and acted as a headwind for the EUR/USD pair.

The downside, however, seems cushioned as investors might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of this week's key data/event risks. The US consumer inflation figures are due for release on Tuesday, which, along with the European Central Bank decision on Thursday, will determine the near-term trajectory for the EUR/USD pair.

Technical levels to watch