EUR/USD extends rebound from multi-year lows, stabilizes above 1.11

The EUR/USD pair, which slumped to its lowest level since May 2017 at 1.1027 earlier this week, has extended its recovery into a second straight day on Friday and erased almost all of this week's losses. As of writing, the pair was up 0.25% on the day at 1.1110.

Falling US Treasury bond yields and heightened odds of a 25 basis points Fed rate cut in September supported the pair's recovery in the second half of the week.

Trump's tariffs ramp up rate cut odds

US President Donald Trump on Thursday announced that they will impose 10% tariffs on $300 billion worth of Chinese imports starting September amid the lack of progress in this week's high-level trade talks in Shanghai. Responding to Trump's decision, China's Commerce Ministry said that China was "strongly dissatisfied" with the latest tariff plan and added that they will have to take countermeasures if said tariffs are implemented.

Heightened concerns over a long-lasting trade conflict and its potential negative impact on the economic outlook, the 10-year US Treasury bond yield slumped to its lowest level since November 2016 by erasing more than 7% in the last 48-hours and weighed on the Greenback. Furthermore, the CME Group's FedWatch Tool's probability of a 25 basis points rate cut in September jumped to 98%, putting additional weigh on the currency's shoulders. Meanwhile, today's data from the US showed that Nonfarm Payrolls in July increased 164,000 to match the market expectation and did little to nothing help the USD find demand. 

On the other hand, the data published by the Eurostat today revealed Retail Sales in the eurozone rose 1.1% on a monthly basis in June following May's 0.6% contraction and surpassed the market expectation of 0.2% to provide an additional boost to the shared currency earlier in the day. As of writing, the US Dollar Index was down 0.26% on the day at 98.14 and was almost flat on the weekly chart. 

EUR/USD technical outlook by FXStreet Chief Analyst Valeria Bednarik

"The EUR/USD pair is struggling with the 1.1100 figure, unable to advance beyond the level. Despite trimming most of its weekly losses, the risk remains skewed to the downside in the long term, as, in the weekly chart, it remains below all of its moving averages, and with the 20 SMA moving further below the larger ones. The Momentum indicator in the mentioned chart is directionless in neutral territory, although the RSI indicator has extended its decline within negative levels, currently at around 41. Its bearish strength is limited but is present."

"In the daily chart, technical readings also indicate that the bearish case remains firmly in place, as the pair is developing some 100 pips below a bearish 20 DMA, which heads south below the larger ones. Technical indicators have bounced modestly from oversold readings, but their strength upward is limited and fall short of suggesting an interim bottom."

"For the upcoming days, 1.1070 is the immediate support, ahead of the 1.1000 figure. If the pair loses this last, the decline could continue toward 1.0920. Above 1.1120, an upward corrective movement could continue toward 1.1200 first, and 1.1250 later, although it seems unlikely the pair could advance this much."