It's Greece again... EUR/USD eyes Greek-German yield spread

And just when you thought nothing can go wrong with the Eurozone now, we have Greece issue back in the limelight.

EUR/USD was offered to one-week low of 1.1122 levels in Asia after German newspaper Bild reported that Greece is threatening to opt out of next payment without a debt deal if creditors cannot agree on debt relief.

Greece issued a ‘panic warning’ on Monday that it could be thrown deeper into recession if the debt deal is blocked at next talks to be held on June 15.

Focus on Greek-German yield spread

The difference between Greek and Periphery government bond yields and the safe haven German bund yields could spike. In the past, the widening of the yield spread during times of stress (Greek crisis, Spain debt crisis in 2012) led to a sell-off in the EUR/USD.

Moreover, the drop in the German yields also means a widening of the US-German yield spread, which is positive for the US dollar.

The EUR could extend the Asian session losses if the Greek-German yield spread widens. Moreover, widening of the yield spread would be an indirect signal that the Greek issue is heating up... Again! As of Friday, the 10-year Greek-German yield spread was 568 basis points.

Later in the day, the US personal spending data could affect the treasury yields and the overall demand for the US dollars.

EUR/USD Technical Levels

A break below 1.1103 (23.6% Fib R of Apr low - May high) would open up downside towards 1.1069 (4-hour 100-MA) and 1.10 (key psychological level + 38.25 Fib R of Apr low - May high). A daily close below 1.10 would signal the rally from the April low has ended.

On the other hand, resistance is seen at 1.1179 (5-DMA + 10-DMA), which, if breached would open doors for a revisit to 1.1268 (May 23 high). A daily close above the same would signal continuation of the rally from the April 10 low of 1.0569 and could yield 1.1366 (Aug 2016 high).

Note - The daily RSI continues to slope downwards from the overbought region. The 4-hour RSI is below 50.00 (bearish territory) and pointing downwards.