EUR/USD hangs near 3-1/2 month lows post-German CPI

   •  German CPI reinforces dovish ECB outlook and keeps EUR on the back-foot.
   •  Resurgent USD demand does little to ease the bearish pressure. 

The EUR/USD pair retreated farther below the 1.2100 handle and remained within striking distance of Friday's 3-1/2 month lows post-German CPI.

Against the backdrop of resurgent US Dollar demand, the pair held on to its offered tone after the latest German inflation figures reinforced expectations that the European Central Bank will keep interest rates low for an extended period of time. 

In fact, the headline CPI was flat on a monthly basis and the yearly rate held steady at 1.6% in April. Meanwhile, harmonized CPI remained well below the ECB's medium-term target of 2% and came in at 1.5% y-o-y during the reported period, with monthly rate showing deflationary pressure (-0.1% m-o-m). 

With the key German inflation data out of the way, traders now look forward to the US economic docket, featuring the release of personal income/spending data, Core PCE Price Index - the Fed's preferred inflation gauge, and Chicago PMI, for some fresh impetus.

Technical levels to watch

A follow-through weakness below mid-1.2000s has the potential to continue dragging the pair further towards the very important 200-day SMA support near the key 1.20 psychological mark. 

On the flip side, any recovery attempts back above the 1.2100 handle now seem to confront resistance near the 1.2130 region and subsequent up-move is likely to be capped at the 1.2155-60 support turned resistance.