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  • EUR/USD is flashing red for the third straight day despite the US yield curve inversion.
  • The narrowing of the US-German yield spread is being ignored by the market.
  • Below-Forecast German consumer confidence will likely hurt the EUR.

EUR/USD remains on the defensive below 1.11 ahead of the London open despite the US yield curve inversion and the slide in the US-German yield spread to the lowest level since the first quarter of 2018.

The US yield curve inversion deepened on Tuesday with the spread between the 10-year and the two-year yields falling to -5 basis points, the lowest level since 2007. Curve inversions have preceded US recessions in the past 50 years.

Further, the spread between the US and German 10-year bond yields fell to an 18-month low of 218 basis points.

Even so, the EUR/USD fell 0.10% on Tuesday and closed below 1.11. The price action indicates the market focus has shifted to the prospect of the aggressive European Central Bank (ECB) easing in September.

As a result, the common currency may suffer a deeper drop today. EUR/USD could revisit the Aug. 23 low of 1.1052 if the German Gfk Consumer Confidence (Sep) prints well below the consensus estimate of 9.36. The data is scheduled for release at 06:00 GMT.

An above-forecast data may put a bid under the EUR. The technical outlook, however, would turn bullish only if the pair finds acceptance above the Aug. 6 high of 1.1250. As of writing, the pair is trading at 1.1088, representing marginal losses on the day.  

Technical levels