EUR/USD breaks above 1.0600 after dollar sell-off after ISM weakness

• The dollar is under widespread pressure amid risk appetite and falling yields.
• US: The weak ISM service sector report follows a larger-than-expected rise in NFP.
• EUR/USD posts its best day in a month, though still down for the week.

The EUR/USD pair jumped above 1.0600 amid a sharp reversal of the US dollar which fell broadly following the ISM services sector PMI report. The pair is up 1.25% from the daily low and is having the best day in a month.

NFP and ISM

The first drop in the dollar occurred after the publication of non-farm payrolls. The economy added 223,000 jobs in December, representing a slowdown from the previous month and showing that the job market remains in good shape. The unemployment rate dropped to 3.5%.

More recently, the ISM services PMI index stood at 49.6 in December, well below the market consensus of 55. The Prices Paid Index fell unexpectedly from 70 to 67.6 points. Reporting raised concerns about a possible “hard landing” for the US economy. At the same time, the employment figures keep open the debate about the next rate hike by the Federal Reserve by 25 or 50 basis points.

After the figures were released, the dollar accelerated its general slide, while US yields plummeted. The 10-year US yield fell from 3.75% to 3.61%, the lowest level since December 20. European yields also fell sharply. The yield on the German 10-year bond fell to 2.19%, the lowest level since December 19, while the Italian 1-year fell to 4.19%.

EUR/USD hit a high of 1.0613, more than a hundred points above the previous one-month low of 1.0483. Euro bulls are now eyeing the 1.0635 area, which is the next resistance. Heading into the weekend, the bias is bullish as long as it remains above 1.0550.

technical levels