EUR/USD looks north with US-DE yield 10-year spread hitting 14-month low

The US-German bond yield differential slips to multi-month lows amid escalating trade tensions.
Italy pledges to play by the EU rule book.
EUR/USD may come under pressure if the Eurozone and German PMI number are revised lower.

The narrowing US-German yield differentials will likely keep EUR/USD better bid on the first trading day of the week.

The currency pair is currently trading at 1.1185, representing 0.15% gains on the day, having hit a low of 1.1116 on May 30.

The spread between the US and German 10-year government bond yields fell to 233 basis points on Friday, the lowest level since April 2018. Meanwhile, the two-year yield differential fell to 260 basis points, the lowest level since February 2018.

With the escalating trade tensions between the US and China, a fed rate cut in December this year or in January of next year is looking increasingly likely. As a result, the yield differentials could continue to slide in the EUR-positive manner this week. It is worth noting that the market is currently priced for a half-percentage-point rate cut by year-end.

Also supporting the immediate bullish case is Italy's promise to respect the European Union's fiscal rules in its next budget.

“I wish to reiterate that the 2020 budget will be SGP (Stability and Growth Pact) compliant,” Tria said in his letter to Brussels, published late on Friday.

Notably, Italy's pledge to follow the EU's rules and the drop in the US-German yield differentials could help the EUR shrug off the political uncertainty in Germany - the leader of Chancellor Angela Merkel's junior coalition partner, the SPD, resigned on Sunday, raising concerns that the ruling government may collapse.

That said, the common currency may run into offers if the final Eurozone and German Manufacturing PMIs for May are revised lower from the preliminary estimates released a few days ago.

Pivot levels

1. R3 1.1251
2. R2 1.1217
3. R1 1.1194
PP 1.1159
1. S1 1.1136
2. S2 1.1102
3. S3 1.1079

Share: Feed news

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.