- EUR/USD is flashing green at press time, possibly due to trade tensions and the resulting dovish Fed expectations.
- The upside looks limited as trade tensions could hurt Germany's economy.
- The entire German bond market is about to turn negative for the first time.
EUR/USD is better bid at press time, but the upside looks limited or the gains could be short-lived, as escalating US-China trade tensions are likely to push the entire German bond yield curve into the negative territory.
The currency pair is currently trading at 1.1126, representing 0.17% gains on the day, having charted a bullish candlestick pattern over the previous two trading days.
The uptick could be associated with the market narrative that the US Federal Reserve may deliver additional rate cuts of 50 to 75 basis points before the end of the year if the US-China trade tensions do not subside. The US central bank cut rates by 25 basis points last week but refrained from signaling further easing.
Trade tensions escalate
Reports hit the wires in Asia that China has asked state buyers to halt purchases of the US agricultural goods. Beijing's move has come four days after President Trump said that the US will impose 10% tariffs on $300 billion worth of Chinese goods from Sept. 1.
With the situation on trade front worsening, investors may feel tempted to offer US Dollars. However, it is worth noting that escalating trade tensions could lead to a German recession.
The nation's bond market is close to turning negative. On Friday, Germany's 10-year Bund yield slipped to a record low of -0.501% - well below the European Central Bank's deposit rate of -0.40%.
More importantly, as of Friday's close, German bunds are offering negative returns (yields) across all maturities except the one maturing in 30-year. That bund is offering a yield of 0.008%, but will likely find acceptance below zero later today.
With that, the entire German yield curve will drop into the negative in the EUR-bearish manner.
Final readings for the German and Eurozone services PMIs for July are scheduled for release today. The data, however, could be overshadowed by the slide in China's Yuan, the resulting risk aversion and the developments in Germany's bond market.
The focus may shift to the US ISM Non-Manufacturing PMI (Jul) scheduled for release at 14:00 GMT.
Technical levels
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD remained bid above 0.6500
AUD/USD extended further its bullish performance, advancing for the fourth session in a row on Thursday, although a sustainable breakout of the key 200-day SMA at 0.6526 still remain elusive.
EUR/USD faces a minor resistance near at 1.0750
EUR/USD quickly left behind Wednesday’s small downtick and resumed its uptrend north of 1.0700 the figure, always on the back of the persistent sell-off in the US Dollar ahead of key PCE data on Friday.
Gold holds around $2,330 after dismal US data
Gold fell below $2,320 in the early American session as US yields shot higher after the data showed a significant increase in the US GDP price deflator in Q1. With safe-haven flows dominating the markets, however, XAU/USD reversed its direction and rose above $2,340.
Bitcoin price continues to get rejected from $65K resistance as SEC delays decision on spot BTC ETF options
Bitcoin (BTC) price has markets in disarray, provoking a broader market crash as it slumped to the $62,000 range on Thursday. Meanwhile, reverberations from spot BTC exchange-traded funds (ETFs) continue to influence the market.
US economy: slower growth with stronger inflation
The dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.