EUR/USD: Breaking lower as German yields slide ahead of ECB

EUR/USD fell below 1.12 in Asia and could extend losses in Europe, courtesy of the dovish European Central Bank (ECB) expectation and the weakness in German Bund yields.

The benchmark German 10-year government bond yield fell four basis points to -0.345 on Monday, having dropped more than 10 basis points in the previous five trading days.

The German yields have come under pressure on expectations that the ECB will keep rates unchanged later this week, but send out a strong dovish message, setting the stage for a 10 basis point deposit rate cut in September.

Many, including the likes of rating agency Fitch, also expect the ECB to restart quantitative easing later this year.

The investors may continue to price in the prospects of fresh stimulus by the ECB today, sending German yields and the common currency lower.

Meanwhile, the US Dollar may remain bid on lower odds of aggressive easing by the US President Trump ramped up pressure on the Fed by tweeting the need for immediate rate cuts. The futures market, however, is still seeing only a 30% probability of a 50 basis point rate cut on July 31. The probability had jumped to 70% last Thursday.

Apart from monetary policy expectations, the pair could take cues from the monthly US housing data and Eurozone's Consumer Confidence (Jul) scheduled for release during the North American session.  

Technical Levels