EUR/USD: US-German yield differentials hit four-month high in the USD-positive manner

• EUR/USD looks south as yield differentials favor dollar strength. 
• Renewed coronavirus concerns in Eurozone continue to weigh on sentiment. 
• Prospects of additional ECB easing push the German bond yields lower. 

Risks for EUR/USD appear skewed to the downside, as the US-German bond yield differentials are rising amid fears of a prolonged coronavirus-induced slowdown across the Eurozone. 

Notably, the US-German two-year bond yield differential, which is more sensitive to near-term inflation and interest rate expectations than the 10-year yield spread, has widened to a four-month high of 0.89 basis points in the EUR-positive manner.

The German yields have come under pressure over the past five days, courtesy of the coronavirus' resurgence across the Eurozone and prospects of additional European Central Bank (ECB) stimulus. 

According to Reuters news, "Spain, Portugal, France, and Germany are among countries working on, or implementing, measures to curb a second coronavirus wave." These restrictions are likely to impact growth and aggravate the low inflation problem. 

Therefore, the EUR buyers are likely to remain on the sidelines unless risk assets post stellar gains, forcing markets to offer the safe-haven US dollar. The US stocks fell on Wednesday on continued deadlock in Washington on additional fiscal stimulus and are likely to trade in the red today due to China's factory deflation. 

The Eurozone data calendar is light on Thursday. Hence, the pair is at the mercy of the macro factors discussed above. However, in the US session, the focus would shift to the weekly US jobless claims.

At press time, the pair is trading in a sideways manner near 1.1750, having charted a Doji candle on Wednesday – a sign of indecision in the market place. 

• EUR/USD Price Analysis: Market turns indecisive

Technical levels