EUR/USD hovers around 1.11, focus on US-German yield spread
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EUR/USD hovers around 1.11, focus on US-German yield spread

  • EUR/USD to remain under pressure on dovish ECB expectations and widening of US-German yield differential.
  • US data bettered estimates on Thursday, alleviating recession fears.
  • US yields could rise, strengthening the bid tone around the USD.

EUR/USD risks extending the three-day losing streak as the US-German bond yield differential could widen on the dovish European Central Bank (ECB) expectations.

The currency pair fell 0.38, 0.29 and 0.28% on Tuesday, Wednesday and Thursday, respectively.

The common currency was offered on Thursday after the ECB’s rate-setting committee member Olli Rehn said the central bank’s stimulus package could be bigger-than-expected.

Rehn’s comments reinforced expectations that the ECB will counter recession fears with aggressive easing. As a result, the German 10-year bond yield fell seven basis points to hit a record low of -0.71 and the spread between the US-and German 10-year bond yields rose by eight basis points.

The German yields may continue to lose ground today, pushing the bond yield spread higher in a EUR-bearish manner, courtesy of dovish ECB expectations.  

Also, the US retail sales data for July released on Thursday bettered estimates, assuring markets that Americans are spending enough to keep the economy from falling into a recession. Therefore, the US treasury yields could gain altitude, adding to the upward pressure around the US-German yield differential and the US Dollar.

As of writing, the pair is trading at 1.1102 and the 10-year US-German yield spread is seen at 225 basis points.

Technical levels


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