EUR/USD traded lower on Monday, threatening to negate the bullish signal generated by the June 19 daily bull hammer candle. The selling pressure was aided by commentary from ECB President Christine Lagarde, who leaned dovish by saying that the central bank is seeing no evidence of de-anchoring inflation expectations or second-round effects that would justify a more aggressive policy response. This was notable given that the ECB had only recently hiked rates, and her remarks likely caught EUR/USD bulls off guard.

The market reaction to Lagarde's comments was swift. German 2-year yields moved lower and Euribor futures prices rose as investors trimmed their expectations for further ECB rate hikes. This dynamic widened the U.S.-German 2-year yield spread to just below -164.50 basis points, a level not seen since early September 2025, effectively boosting the dollar's yield advantage over the euro.

Should these headwinds persist, EUR/USD looks set to remain under bearish pressure, a view that is reinforced by a deteriorating technical picture. Both the daily and monthly RSIs are falling, signaling growing downward momentum, and the pair continues to trade below its bearishly aligned 10- and 21-day moving averages. Perhaps most notably, monthly charts are showing a head and shoulders pattern forming, and a completion of that pattern suggests a move below the 1.1000 level is possible.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)