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The central banks events with the Fed on Wednesday and ECB on Thursday could add volatility to the EURUSD. Europe should be particularly sensitive to a global economic slowdown and we are seeing some slow-down being priced in the market looking at commodities such as oil, taking into account demand weakness. The EURUSD as a result could be particularly vulnerable to a global economic slowdown, which could take the pair down back to where it was about a month ago at around 1.08, from 1.0950 currently. Also, to take into consideration that the market has already prices many interest rate cuts for the US Federal Reserve, and should expectations for rate cuts disappoint, it could once again give the dollar a boost. When everybody is talking about the end of the dollar, it is simply something to question and perhaps consider a possible opposite-direction scenario.

The low volatility in European stocks is not a good environment to build positions, sort of on the contrary. Markets seem increasingly complacent. What is driving the caution is that traders see more catalysts to the downside right now with earnings season and macro data release. The US debt ceiling, recession fears and inflation risks are all weighing on market sentiment, despite the stronger earnings than expected.

Here is a breakdown by Bloomberg of month-over-month 'Supercore' CPI figure (which is Core Services minus Rent or equivalent for owners) which the Fed is watching. The March number is +0.4%, down from +0.5% in February. Source: Bloomberg.

There is a possible reversal setting up in the EURUSD pair after the bullish spike on Friday. The possible retracement could come in light of the dollar strengthening. The US inflation number could add to volatility. 

The euro is rebounding versus the dollar in light of slightly weaker German unemployment data. This suggests that as the economy decelerates and if it does begin to very meaningfully deteriorate, not only inflation should come down more rapidly, but central banks may end up being forced to support the economy instead of restraining it with interest rate hikes and QE deleveraging. The bad news is 'good news' for now, helping risk assets recover slightly. The Nasdaq is up 0.4% in pre-market ahead of key US macro data and Fed Chair Powell's speech later in the day.