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EUR/USD: On defensive below 61.8% Fib ahead of Draghi speech, US-DE yield differential could be bottoming out

  • EUR/USD has found acceptance below the key 61.8 percent Fibonacci retracement. 
  • The spread between the 10-year US and German government bond yields could rise in the EUR-negative manner over the next few days, according to technical charts. 
  • ECB's Draghi is likely to reiterate the dovish message delivered three weeks ago. 

EUR/USD is on the defensive, having closed below 1.1280 (61.8% Fib R of 1.1176/1.1448) yesterday and the spread between the US and German 10-year bond yields is flashing early signs of bullish reversal ahead of the European Central Bank (ECB) President Draghi's speech. 

The shared currency fell 0.40 percent on Tuesday, as the US 10-year treasury yield ticked higher to 2.45 percent, having hit a low of 2.37 percent on Monday. Meanwhile, its German counterpart gained just one basis point. Therefore, the spread between the two jumped higher, forming an inverted inside-day bullish hammer - an early sign of trend change. Put simply, the candlestick pattern indicates that the spread could rise in the EUR-negative manner over the next few days. 

The recovery in the US-DE yield differential, however, may not happen if the ECB President Draghi, during his speech at 08:00 GMT, sounds less dovish than he did three weeks ago at the ECB presser. The central bank head had struck a cautious tone on eurozone economy while pushing out rate hike plans to 2020 and could reiterate that message today, as there hasn't been a marked improvement in the economy in the last few weeks.

So, the path of least resistance for the EUR appears to be on the downside. Supporting the bearish case are the downward sloping 5- and 10-day moving averages (MAs), acceptance below the 61.8% Fib level of 1.1280 and the RSI's drop below 50.00.