EUR/USD: Upside favored as cost of borrowing in risky Eurozone nations tanks

• EUR/USD is better bid near a key resistance at 1.1349.
• Periphery-German bond yields slide in a EUR-positive manner. 
• Fiscal integration would bode well for the shared currency.

EUR/USD is gathering upside steam with the cost of borrowing for Eurozone’s riskiest countries falling to levels last seen before the beginning of the coronavirus crisis. 

At press time, the currency pair is trading at session highs near 1.1345, representing a 0.15% gain on the day and nearly a 1% rise on a week-to-date basis. The currency pair looks set to cross above the bearish lower high of 1.1349 created on June 23 and extend the rally to levels above 1.14, as discussed early Thursday. 

Greece-German yield spread tanks

The spread between the 10-year Greek and German government bond yields fell to 1.53 on Wednesday to hit the lowest level since the end of February. Similarly, the spread between the Italian and German 10-year bond yield also declined to 4.5-month lows. 

Essentially, the bonds markets have priced out the stress injected by the coronavirus crisis. After all, the European Central Bank is buying 1.35 trillion euros of assets in the Eurozone as part of its pandemic emergency purchase program (PEPP) in addition to the bond-buying program of 20 billion euros per month.

With borrowing costs in risky Eurozone nations falling, the path of least resistance for the EUR appears to be on the higher side. The bid tone would strengthen further if the EUR 750 billion packages backed by European Commission bonds to help economies battered by the lockdowns could usher in greater fiscal integration, as noted by Jeroen Blokland, Portfolio Manager at Robeco Multi-Asset funds, Robeco ONE and Robeco Pension Return Portfolio, in the monthly outlook. 

Technical levels