EUR/USD retreats back closer to 1.0500 psychological mark

The EUR/USD pair reversed over 100-pips from an early knee-jerk spike to three-week high beyond 1.0600 handle and dropped back closer to 1.0500 psychological mark. 

A smart recovery in the front-end US Treasury bond yields helped the greenback to recover early lost ground to two-week lows. In fact, the overall US Dollar Index, which measures greenback's performance against a basket of currencies, is flirting with daily high and just shy of moving back into positive territory. 

Earlier during the day, the pair surged over 130-pips amid extremely illiquid market conditions, which aggravated a mild greenback retracement led by Thursday's disappointing US goods trade balance data that showed deficit widened in November to $65.3 billion, the highest level since March 2015.

Ahead of New Year's weekend, investors are unlikely to place any big directional bets as focus remains on the US president-elect Donald Trump's proposed fiscal policies, which would determine the Fed's monetary policy stance in 2017 and eventually trigger the next leg of directional move for the major. 

Technical levels to watch

On a sustained retracement back below 1.0500 psychological mark, the pair is likely to drift back towards 1.0470-65 support area, en-route 1.0415-10 strong horizontal support. On the upside, momentum back above 1.0530 level now seems to confront resistance near 1.0555-60 region, which if cleared might assist the pair back towards reclaiming 1.0600 handle.