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  • EUR/USD recedes from session highs near 1.21 seen in early Asia. 
  • Weak German CPI would underscore the Fed-ECB divergence.
  • The EUR may find bids if the ECB takes on the bond market.

After hitting a high of 1.2101 in early Asia on broad-based dollar weakness, EUR/USD has now receded to 1.2085. 

On the defensive ahead of German CPI

The currency pair looks south, having formed an inverted bearish hammer last week in the process confirming a downside break of a multi-month bullish trendline. Progress in the US President Joe Biden’s $1.9 trillion stimulus plan could underpin Treasury yields, keeping EUR/USD under pressure.

The German Consumer Price Index (CPI) data due at 13:00 GMT is expected to show that the cost of living in the Eurozone’s manufacturing powerhouse rose 0.5% month-on-month in February versus 0.8% in January. 

A weaker-than-expected data would validate the European Central Bank’s dovish stance at a time when the Fed funds futures are signaling early monetary policy tightening by the Federal Reserve (Fed), yielding a more profound decline in EUR/USD. 

However, the common currency could find bids if the ECB steps up bond purchases to stem the rally in the government bond yields. The Reserve Bank of Australia doubled the size of its daily bond purchases from $2 billion to $4 billion early Monday, leading to a 25 basis point slide in the 10-year Australian government bond yield to 1.65%. The AUD/USD pair is currently trading 0.60% higher on the day near 0.7750. 

Technical levels

 

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