Euro bulls remain on the sidelines as USD gains on US-Iran tensions and inflation fears

The EUR/USD pair kicks off the new week on a softer note, though it lacks follow-through selling, warranting caution before positioning for an extension of the pullback from a nearly four-week high touched last Wednesday. Spot prices currently trade around the 1.1430 region, down for the third straight day, as the focus remains on the Middle East crisis.

The US military said that it carried out a ninth straight night of strikes against Iran aimed at degrading Iranian capabilities used to attack commercial vessels and civilian mariners transiting the Strait of Hormuz. Moreover, US allies in the region reported a new wave of attacks on Sunday, pointing to a further escalation of the conflict. This continues to prompt traders to price in the geopolitical risk premium, which underpins the US Dollar's (USD) safe-haven status and acts as a headwind for the EUR/USD pair.

Meanwhile, crude oil prices have jumped to a fresh high since June 12 as the closure of the critical Strait of Hormuz, alongside the US naval blockade of Iranian ports, fuels concerns about more supply disruptions in the Middle East. This sudden spike in oil prices stokes fears of a reacceleration in global inflation, which might force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. This is seen as another factor supporting the Greenback and warrants caution for the EUR/USD bulls.

Moving ahead, traders this week will take cues from the European Central Bank (ECB) meeting on Thursday, which will play a key role in influencing the shared currency. Apart from this, fresh geopolitical developments might continue to infuse volatility in financial markets, which would drive the USD demand and provide some meaningful impetus to the EUR/USD pair. In the meantime, the aforementioned fundamental backdrop warrants some caution for bulls, and before positioning for any meaningful appreciation.