EUR/USD erased early gains and traded near flat on Friday with help from U.S. rate and dollar gains, but bears seem to be hibernating, which suggests upside risks remain.
February ISM indicated steady service sector growth.
The employment and new orders components increased from January but prices paid dropped to 65.6 from 67.8 in January, which could be a sign of moderating inflation.
rates EDZ3, US2YT=RR and the dollar gained on the data but failed to make highs for the uptrend, corraling dollar bulls.
Despite those rate increases German-U.S.
2-year yield spread US2DE2=R, which EUR/USD is positively correlated with, tightened and further eroded the dollar's yield advantage over the euro.
EUR/USD options investors are growing less wary of a downside more.
Risk reversals EUR1MRR=FN indicate vol premiums for puts over calls reduced further and trade at levels not seen since mid January.
Fresh hawkish ECB rhetoric and upward revisions to the ECB's terminal rate from major investment banks should temper euro bears.
Focus now turns to U.S. February employment data, which, if downbeat, could lead to a less hawkish Fed, pressuring rates and the dollar lower and allowing EUR/USD to rally.
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