EUR/USD slides on Friday, suggesting upward exhaustion

• US dollar strengthens on Friday amid risk aversion and higher US yields.
• Positive employment report partially offset by a weaker reading of ISM Service PMI.
• EUR/USD flat for the week at around 1.0700.

 The EUR/USD failed to recover the 1.0750 zone and pulled back during Friday’s American session toward the 1.0700 area. It is about to end at the same level it had a week ago after the US dollar recovered strength following NFP and the ISM Service PMI.

Yields, NFP and risk aversion

The employment report in the US came in modestly above expectations, but later the ISM Service PMI showed a larger-than-expected decline. Despite the numbers, US yields rose with the 10-year reaching 2.98%, the highest level since May 18. German yields are also higher, with the 10-year at 1.27%, level not seen since 2014, ahead of the European Central Bank meeting due next week.

US stocks are falling on Friday, the Dow Jones by 1.03%, the NASDAQ by 2.57% and the S&P 500 by 2.58%. The deterioration in market sentiment is offering support to the greenback. The DXY is up 0.45%, trimming more than half of Thursday’s losses.

Technical outlook

“The EUR/USD pair is trading just below the 50% retracement of its latest slide, measured between 1.1186 and 1.0348 at 1.0770. The weekly chart shows that the pair keeps developing well below all of its moving averages, with the 20 SMA maintaining its bearish slope below the longer ones,” explained Valeria Bednarik, Chief Analysts at FXStreet. She noted the bullish potential remains limited, “although the trend may gather momentum if the pair breaks above the 61.8% retracement at 1.0855. Steady gains above the latter could mean an extension towards the critical 1.1000 figure.”

Bednarik adds technical readings in the daily chart suggest upward exhaustion. A daily close clearly above 1.0775 should strengthen the euro, opening the doors to more gains. The 20-day SMA at 1.0610 is a critical support.

Technical levels