The EUR/USD pair is currently under downward pressure, trading at approximately 1.1530, down from 1.1614 earlier this week. This shift occurs as the U.S. dollar maintains its upward trajectory, driven by the latest Federal Reserve minutes and a strong U.S. Nonfarm Payrolls report. The euro is encountering persistent difficulties as a result of underwhelming regional data, falling construction and manufacturing figures, and rising uncertainty about the direction of the European Central Bank’s policy. Market participants currently perceive limited potential for the euro’s recovery in anticipation of the Fed’s December 10 meeting, as expectations for a rate cut have dropped significantly from nearly 90% last month to just 34%, thereby offering strong support for the dollar against all major currencies. The September U.S. jobs report, delayed because of the previous government shutdown, showcased a mix of indicators while confirming that the labor market continues to be tight enough to avoid any immediate easing measures. Nonfarm Payrolls rose by 119,000, exceeding the expected number of 50,000, while unemployment climbed to 4.4%, reaching its highest point since 2021. Average hourly earnings increased by 0.2% from the previous month and 3.8% compared to the same time last year, reflecting a decline from earlier rates of 0.3% and 3.9%, suggesting a slowdown in wage growth. Given the recent softening, the data now shows a 39% likelihood of a December rate cut, down from the 50% seen last week. The repricing elevated the U.S. Dollar Index to slightly over 100.00, as the 10-year Treasury yield remained steady at 4.12%, supporting ongoing capital inflows into dollar assets. Cleveland Fed President Beth Hammack highlighted this stance, warning that a premature rate cut might “undermine policy credibility and invite financial instability.” Her tone clearly indicated that the Fed will prioritize controlling inflation over fostering growth momentum, a message that directly impacts EUR/USD sentiment as we approach year-end.
Across the euro area, economic indicators persist in reflecting a broadly unsatisfactory trend. In September, Eurozone construction output saw a decrease of 0.5% month-on-month, after a drop of 0.3% in August. Furthermore, the yearly numbers have also dropped into the negative range. Final consumer price inflation was confirmed at 2.1% for the headline and 2.4% for the core, strengthening the ECB’s stance that rates can stay restrictive. At the same time, industrial production in Germany and Italy keeps falling, while consumer sentiment remains bleak due to high borrowing costs eroding household confidence. The ECB’s Luis de Guindos highlighted that inflation could stabilize near the target without further rate hikes, suggesting that any upcoming policy changes—if they happen—will depend more on growth data than on inflation figures. With Eurozone PMIs hovering near contraction levels (the services PMI currently at 49.6) and unemployment steady at 6.5%, the region’s limited resilience offers little support for the euro. The technical structure of EUR/USD has moved to a distinctly negative perspective. The pair remains limited under a descending trendline formed from the October peaks around 1.1650, with steady closes beneath the 20-day EMA reinforcing the strength of sellers. The RSI at 31 suggests a nearly oversold condition, with no bullish divergence observed, indicating that downside risks are still a concern. The essential breakdown area is marked between 1.1510 and 1.1480. A clear break in this range is anticipated to trigger a shift towards 1.1411, which marks the next key demand level observed during the consolidation phase in August.
On the bright side, a short-term rebound would require a daily close above 1.1550, opening up possibilities for movement toward 1.1598. However, the price remains limited below its 50-day moving average near 1.1650, while the 100-day average at 1.1720 is now acting as a strong resistance level. The current trend continues to favor the U.S. dollar until the euro can effectively regain these technical levels. The German-U.S. 10-year yield spread, currently at approximately –180 basis points, continues to play a crucial role in influencing the euro’s performance. The gap is almost at its widest point since March 2024, suggesting a strong inclination towards dollar-denominated debt for carry returns. Currently, the Euribor 3-month rate is stable at approximately 3.81%, while the U.S. 3-month Treasury yield stands at 5.28%, resulting in a distinct 147-basis-point edge for dollar-denominated assets. This structural imbalance underpins the dollar’s premium and explains why the euro has not benefited from occasional risk-on phases in global equities. Following the postponed jobs report, EUR/USD saw a short uptick from 1.1502 to 1.1541. However, the gains were constrained as traders interpreted the mixed signals—strong headline hiring contrasted with slowing wage growth and a minor increase in unemployment. The mixed data offered only a short pause for dollar momentum, as investors concluded that the Fed would probably delay cuts until 2026. Futures currently suggest that the initial full reduction will not take place until June 2026, emphasizing the persistent trend of an extended higher interest rate policy in global markets.
The University of Michigan Consumer Sentiment Index remains stable above 67, while U.S. housing starts are at 1.35 million and building permits at 1.46 million, suggesting no notable downturn. The euro’s failure to take advantage of these softer U.S. metrics highlights the underlying imbalance that is contributing to the weakness of EUR/USD. The euro’s short-term trading activity reflects hesitation instead of capitulation. Market depth data shows a 6% decline in speculative long positioning compared to the previous week, with net shorts reaching their highest level since March 2024. Despite oversold technical indicators, there is insufficient widespread evidence showing capitulation among euro buyers. Institutional traders continue to view the 1.1480–1.1500 range as a medium-term accumulation zone, though participation is low as they await the forthcoming major data catalyst. Options volatility on EUR/USD has increased to 7.8%, suggesting that traders are bracing for more substantial price movements ahead of the December 10 Fed meeting. The implied volatility curve showed a steepening for one-week maturities, reflecting an increased demand for downside hedges on the euro. The euro’s chances for recovery seem constrained because of the lack of data ahead of the December FOMC meeting. Market participants will be focused on the HCOB Services PMI, expected to be 49.8, along with the remarks from ECB Vice President de Guindos for insights into growth outlooks. Across the Atlantic, attention shifts to U.S. flash PMIs and jobless claims, which could impact the durability of the Fed’s stance on maintaining rates through early 2026.
If U.S. yields hold steady around 4.1–4.2%, we might observe EUR/USD stabilizing within the range of 1.1480–1.1580 in the upcoming sessions. A dovish surprise in the upcoming U.S. data could prompt a pullback to 1.1650; nonetheless, the structural resistance remains strong. The ING Bank’s long-term model continues to target 1.18 by the end of 2025, while Wells Fargo expects a drop to 1.12 by the first quarter of 2027, highlighting the uncertainty present in global rate differentials. The data shows a consistent decline in EUR/USD, shaped by varying policy approaches, slow growth in the Eurozone, and strong labor performance in the U.S. Current technical indicators suggest a potential decline towards the 1.1480–1.1410 range, while short-term resistance seems to be capped around the 1.1590–1.1650 levels. Unless the upcoming Eurozone PMIs show a significant positive surprise or the Fed signals a change in policy, the current mood stays negative.