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The dollar edged higher during the course of Friday’s session as U.S. bond yields rallied, while the euro slipped after the European Central Bank (ECB) made decisions to extend its debt-buying program even though the reduction of the size of its purchases had intervened the currency bulls.

The dollar index rose 0.1 percent to settle at 101.230, while the DXY was higher by nearly 1 percent overnight. Consequently, it seemed that the currency was just on track to gain about 0.3 percent this week.  

Meanwhile, the dollar found support on the broad U.S.-Japan interest rate differentials, with the benchmark 10-year Treasury note yield skyrocketing at 2.445 percent US10YT=RR.  

The Treasury yield gave back gains to a 1-1/2-year peak f 2.492 percent seen last week, followed by a strong demand in euro zone debt yields overnight.  

Long-dated euro zone bond yields were seen rallying, while the euro declined on Thursday after the ECB reported reduction in its monthly asset buys to 60 billion euros $63.58 billion as of April, with an earlier reading of 80 billion euros.

"The reduction in purchases initially came as a surprise to the market as we first thought it was policy tapering," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank in Tokyo.

"But ECB showed after all that it is willing to ease for a longer term, expanding what it could buy."

The euro slipped 0.2 percent to settle at $1.05920, after dropping 1.3 percent overnight, marking the biggest intraday loss since late June.

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Euro Largest One-day Drop Since Brexit

The euro posted its largest one-day percentage decline on Thursday since the Brexit in late June, followed by ECB’s decision to cut its monthly bond-buying program set in April.  

In the minutes after the announcement, the currency rallied by about 0.7% to settle at $1.0874, marking its highest level since Nov. 14, but soon fell, which declined over 1.5% to a three-low of $1.0602, as investors realized that the statement had a mixed message of a continued stimulus but positioned at a lower level. Meanwhile, the euro changed hands at $1.0616 at Thursday’s close in New York.        

Current Stance of EUR/USD

The chart below illustrates EUR/USD price movement amid euro’s largest one-day drop since Brexit, including the European Central Bank’s decision to cut its massive monthly bond-buying program set in April.

Given a bearish tone of the pair, market participants have begun selling the risky currencies as it is widely anticipated that the ECB’s decision gave a huge impact on the pair.

Further, the pair tried to test support 1.05497 in a light trading volume, followed by thinner trading in yesterday’s close, but positioned slightly away from the support.   

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Conclusion

As the illustrative chart above shows a bearish tone of the pair, market participants are recommended to still wait on the sidelines as there aren’t any supporting candle present as of writing.

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