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  • Gets a lift from widening DE-US yield spread, as German yields outperform.
  • Upbeat French and Italian industrial production data underpin the Euro.
  • Dollar bulls take a breather ahead of Powell’s Congressional testimony, FOMC minutes.

The EUR/USD pair extended its recovery from three-week lows of 1.1194 into a second day today, as the EUR bulls were offered a reprieve from the solid recovery in the German yields while a rebound in the French and Italian industrial sector activity also added to the renewed upside in the shared currency.

The widening yielding spread between the 10-year German and US government bond yields helped put a fresh bid under the EUR, adding extra legs to the ongoing EUR/USD recovery. The spot prints fresh highs near 1.1230  as the benchmark 10-year German yields reach 2-week tops, up nearly 18% on the day while the 10-year Treasury yields rally 2.50% to 2.11 levels.

Adding to the renewed strength around the major, the US dollar corrects lower across its main competitors from multi-week tops, as markets resort to profit-taking ahead of the Fed Chair Powell’s day 1 of testimony on the Semi-Annual report, scheduled later today at 1400 GMT. Markets expect Powell to advocate a case for a smaller rate cut (25 bps likely) following solid US payrolls data.

However, the further upside looks unlikely amid downward revisions made to the Euro area 2020 GDP growth forecasts by the European Commission while the US dollar could regain the bids and resume the recent rally on a less dovish-than-expected Powell.

Also, in focus remains the FOMC June meeting’s minutes, which will be published at 1800 GMT. “The minutes of Federal Reserve’s June meeting will most likely be dovish but will have little impact on the  US dollar  if Powell’s testimony is laced with optimism,” FXStreet’s Omkar Godbole notes.

Levels to watch