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  • German 10-year bund yield falls below ECB’s deposit rate and exerts some pressure.
  • Rehn’s dovish comments reinforce ECB easing bias and contributed to the pullback.
  • Fed rate cut bets kept the USD bulls on the defensive and helped limit the downside.  

The EUR/USD pair failed to capitalize on its early uptick to the 1.1300 neighbourhood and refreshed session lows in the last hour.

The yield on the benchmark 10-year German bund below the ECB’s deposit rate for the first time on Thursday and clearly indicates growing market conviction that the central bank might soon ease monetary policy further amid the fall in inflation expectations.

Comments by the ECB Governing Council member – Olli Rehn, saying that further monetary stimulus is needed until there is an improvement in economic and inflation prospects reinforced the expectations and exerted some downward pressure on the shared currency.  

However, the fact that the incoming softer US economic data have been fueling speculations that the Fed will eventually cut interest rates in July kept the US Dollar bulls on the defensive and turned out to be one of the key factors helping limit further downside.

Moreover, investors also seemed reluctant to place any aggressive bets amid relatively thin liquidity conditions on the back of the Independence Day holiday in the US and ahead of Friday’s important release of the closely watched US monthly jobs report – NFP.

Hence, it would be prudent to wait for a decisive breakthrough the recent trading range support around the 1.1270-65 region – nearing 100-day SMA, before traders start positioning for any meaningful depreciating move.

Technical levels to watch