EUR/USD eases to 1.2230, looks to close week modestly higher

Despite rising concerns over the U.S. government shutting down, the greenback gained traction towards the end of the week and weighed on the USD denominated pairs. As of writing, the EUR/USD pair was trading at 1.2230, losing 0.07% on the day. On a weekly basis, the pair is still up around 40 pips and it remains on track to record its fifth straight positive weekly close.

Although the UoM Consumer Sentiment Index fell short of the market expectation of 97 as it fell to 94.4 from 95.9 in the first preliminary reading of January, it didn't have a negative impact on the US Dollar Index's action in the NA session. After testing the 90 handle for the third time this week earlier today, the index started to retrace its losses and was last seen at 90.40, where it was up 0.09% on the day. 

Following a decisive break above the critical 2.6% handle on Thursday, the 10-year US T-bond yield extended its gains on Friday and helped the buck stage a modest recovery in the second half of the day. At the moment, the 10-year T-bond yield is up 1% on the day at 2.635%.

On the other hand, investors are waiting for fresh developments on the passage of the spending bill, which would avert a government shutdown. According to the latest headlines, President Donald Trump reached out to some Senate Democrats and invited them to the White House to work on a deal. Nonetheless, even in case of a government shutdown, the market reaction is likely to stay limited with the trading volume thinning out ahead of the weekend.

Technical outlook

Valeria Bednarik, American Chief Analyst at FXStreet, writes, "technically, the EUR/USD pair has set a higher high and a higher low weekly basis, reaching its highest since December 2014 and closing it marginally higher, all of which maintains the bullish trend in place. The pair is up for a fifth consecutive week, with the chart showing that technical indicators have pared gains near overbought readings, but aren't suggesting upward exhaustion."

"In the daily chart, the bullish potential is even stronger, as the 20 SMA has gained  a strong upward slope below the current level, while the Momentum resumed its advance after correcting overbought conditions, as the RSI consolidates around 66, all of which leans the scale towards the upside," Bednarik further adds.