EUR/USD drops quickly to 1.0650 as US dollar soars and stocks tumble

• US dollar gains momentum amid risk aversion and higher US yields.
• April ISM Manufacturing PMI rises unexpectedly.
• EUR/USD approaches support area of 1.0640.

The EUR/USD broke to the downside after trading for hours in the range between 1.0730-1.0700 and dropped to 1.0650, hitting the highest level since May 25. The pair remains under pressure as the US dollar benefits from higher US yields and risk aversion.

Stocks and Treasuries slide

After a positive opening, equity prices in Wall Street reversed sharply following the release of US data. The better-than-expected figures keep the Federal Reserve on track for aggressive rate hikes.

The ISM Manufacturing PMI rose in May to 56.1 from 55.4 in April, above the 54.5 of market consensus. The unexpected increase in activity boosted the dollar and weakened the demand for Treasuries. The US 10-year yield jumped from 2.84% to 2.93%, the highest level since May 22 and the 30-year climbed to the weekly high at 3.08%.

In Wall Street, the Dow Jones is falling by 0.75% and the Nasdaq drops 0.43%. The negative turn in equity prices boosted further the dollar. The DXY is up by 0.70%, hovering around 102.50, the highest in a week.

From a technical perspective, the area between 1.0640/50 is a strong support; below the next target stands at 1.0605. If EUR/USD manages to hold above 1.0650, the euro could rebound initially to 1.0700. Above the next resistance is seen at 1.0735.

Technical levels