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  • EUR/USD could rise if German yields chart recovery on fiscal stimulus hopes.
  • Der Spiegel reported on Friday that Germany could take on new debt to counter the recession.

EUR/USD is at the mercy of the action in the German bond yields amid rising dovish European Central Bank (ECB) expectations and the talk of German fiscal boost.

The yield on the German 10-year bond yield remained under pressure throughout the last week as investors piled into safe-haven assets on fears of a European recession.

Notably, the benchmark yield printed a new record low of -0.726% on Friday before closing the day with moderate gains to -0.684%.

The yield recovered after Der Spiegel magazine said the German government is considering ditching its balanced budget rule and could take on new debt to counter a possible recession.

German yields could rise this week  in the EUR-positive manner on fiscal stimulus hopes. That said, the upside, if any, will likely be capped around the former support-turned-resistance of 1.1162, as investors are still betting on a raft of stimulus measures from the ECB.

The central bank is expected to cut rates further into the negative territory next month. As of now, the ECB’s deposit rate stands at -0.4%.

With markets focused on German government’s and ECB’s response to the economic slowdown and the resulting action in the bond yields, the Eurozone current account data for June, due for release at 08:00 GMT, and the consumer price index, scheduled for release at 09:00 GMT, are unlikely to move the needle on the EUR pairs.

As of writing, the pair is trading at 1.1090, having dropped for the fourth straight session on Friday.  

Technical levels