EUR/USD: yield differentials favor the US dollar

The US-German (DE) two-year yield spread is rising in the EUR-negative manner.
Markets are likely expecting a dovish bias.
The International Monetary Fund (IMF) on Monday downgraded the global growth forecast, courtesy of softening demand across Europe.

Omkar Godbole FXStreet Contributor

The EUR/USD pair is currently trading at 1.1360 and risks falling to 1.13, courtesy of the dovish European Central Bank (ECB) expectations.

The spread between the US and German two-year bond yields rose to 320 basis points on Friday; the highest level since Dec. 21. The rising yield differential indicates the markets are likely expecting the European Central Bank (ECB) President Draghi to sound dovish at this week's rate-setting meeting on Jan. 24.

Notably, the yield spread could rise further ahead of the ECB's rate decision, as the IMF's cut its forecast for the world economy for the second time in three months, citing softening demand across Europe. Add to that Brexit uncertainty and financial market instability and Draghi has little room to talk dovish.

The EUR, therefore, is likely to remain under pressure ahead of the ECB's rate decision. The technicals are also biased bearish. For instance, the pair has found acceptance under the 50-day moving average (MA) support and the 5- and 10-day MAs are trending south.

EUR/USD Technical Levels

EUR/USD

Overview:
    Today Last Price: 1.1361
    Today Daily change: -0.0008 pips
    Today Daily change %: -0.07%
    Today Daily Open: 1.1369
Trends:
    Daily SMA20: 1.1428
    Daily SMA50: 1.1388
    Daily SMA100: 1.146
    Daily SMA200: 1.1599
Levels:
    Previous Daily High: 1.1392
    Previous Daily Low: 1.1357
    Previous Weekly High: 1.1491
    Previous Weekly Low: 1.1353
    Previous Monthly High: 1.1486
    Previous Monthly Low: 1.1269
    Daily Fibonacci 38.2%: 1.1378
    Daily Fibonacci 61.8%: 1.137
    Daily Pivot Point S1: 1.1353
    Daily Pivot Point S2: 1.1338
    Daily Pivot Point S3: 1.1318
    Daily Pivot Point R1: 1.1388
    Daily Pivot Point R2: 1.1407
    Daily Pivot Point R3: 1.1423

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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