The EUR/USD pair is currently positioned around 1.1567, reflecting an intraday increase of approximately 0.40% as the euro appreciates due to a general decline in the U.S. dollar, prompted by underwhelming macroeconomic data from the United States. The pair is experiencing a rebound from the low of 1.1470 observed last week, successfully breaking above the short-term descending trendline that has limited upward movement since October. The technical landscape is tightening, but with the U.S. Dollar Index falling back below 100.00, the tide is shifting in favor of euro bulls for the first time in several weeks. The driving force behind the ongoing EUR/USD rally is the decline in U.S. macroeconomic strength. The most recent Producer Price Index experienced a month-over-month increase of only 0.3%, while the core measure saw a rise of 0.2%, falling short of the anticipated 0.3% increase. On a yearly basis, PPI inflation held steady at 2.7%, yet the softness in service-sector pricing suggests a potential cooling in demand. In parallel, U.S. Retail Sales increased by a modest 0.2% in September, falling short of the 0.4% forecast, while core sales excluding autos rose by just 0.3%, also below expectations.
The Retail Sales Control Group, which directly influences GDP, experienced a contraction of 0.1%, marking a significant shift from the 0.6% growth observed in August. This decline coincided with a drop in the ADP employment 4-week average from -2.5K to -13.5K, indicating a worsening labor market. The combination of these figures diminished the argument for a robust U.S. dollar and intensified expectations for monetary easing. Reports indicates that traders currently assign an 84–85% probability to a 25-basis-point rate cut at the FOMC meeting scheduled for December 9–10, a significant increase from the 30% probability observed just a week prior. The recent repricing has resulted in the 10-year Treasury yield dropping to 4.02%, and the 2-year yield to 3.48%. Meanwhile, the DXY has decreased to 99.84, marking its lowest point in five sessions. The shift in U.S. monetary sentiment arises from the accommodating language used by leading Federal Reserve officials. John Williams, President of the New York Fed, indicated that the current stance is “modestly restrictive” and noted there’s “room for adjustment toward neutral,” suggesting a willingness to consider cuts while maintaining progress on inflation. Christopher Waller emphasized that the softening of the labor market justifies additional easing, while Mary Daly from the San Francisco Fed supported this view by referencing “broad moderation” in economic activity.
These synchronized remarks indicate a significant change from the aggressive stance observed in October, when decision-makers were split on the duration of maintaining high rates. The market has adjusted accordingly: futures now suggest a minimum of two cuts prior to March 2026. This corresponds with the strength of the euro, as investors shift their focus from dollar-denominated assets in response to declining real yields. The euro’s strength has been bolstered by the consistent performance observed in the Eurozone’s economic indicators. Germany’s GDP figures, released earlier in the session, indicated a 0.2% quarterly contraction, which was less severe than the anticipated 0.3%, easing worries about a more significant recession. Meanwhile, the IFO Business Climate Index stabilized near 88.6, indicating that sentiment has ceased to decline following several months of contraction. The European Central Bank maintains a prudent yet measured stance. President Christine Lagarde has emphasized that “the disinflation process is advancing,” yet she has refrained from indicating any forthcoming rate cuts. The ECB’s deposit rate is currently at 3.75%, with market pricing indicating that expectations for easing are not anticipated until Q2 2026. The difference in timing between the Fed’s dovish pivot and the ECB’s gradual approach has played a role in the recent recovery of EUR/USD from 1.1450 to 1.1567.
The EUR/USD pair is currently examining a crucial technical inflection point. The descending trendline from the October high near 1.1780 remains a barrier for upward movement, yet momentum indicators are beginning to favor bullish sentiment. The 20-day EMA, presently near 1.1550, is showing signs of flattening, whereas the 50-day EMA is positioned a bit higher at 1.1590. A close above this level would mark the first bullish crossover since early September. Support is solidly positioned at 1.1480, with subsequent levels at 1.1420, and a more substantial buffer around 1.1340. Resistance is observed at 1.1600, 1.1660, and 1.1780. The RSI has bounced back to 49, up from 35 last week, suggesting a decline in bearish momentum. The MACD histogram indicates a reduction in the size of negative bars, implying convergence and the potential for a bullish reversal in the near term. Market participants are closely monitoring the 1.1590–1.1600 threshold, which coincides with the 20-day EMA and previous support levels observed in October. A decisive break above this zone would invalidate the short-term downtrend and signal potential upside toward 1.1700–1.1780. Conversely, not sustaining above 1.1480 could bring back selling pressure toward 1.1420. The broader DXY index continues to play a crucial role in determining the trajectory of EUR/USD. The index has now fallen below its 20-day moving average for the first time in a month, indicating a potential exhaustion in its uptrend. The technical framework indicates a support level at approximately 99.72, with resistance positioned around 100.80. The relationship between EUR/USD and DXY continues to show a strong negative correlation at -0.93, indicating that ongoing weakness in the greenback would correspondingly support the euro’s rise.
However, considering that the dollar’s weakness is driven by expectations of future easing, stronger U.S. data anticipated in the coming week—especially from the postponed PPI, ADP, and Retail Sales reports—might temporarily restrict euro gains. A PPI rebound above 0.4% or stronger job data could push the DXY back above 100.50, limiting the pair’s potential for upward movement. Liquidity conditions are currently limited as markets near the end of the year, leading to increased intraday volatility. Based on data, long positions in EUR/USD account for 54% of open interest, indicating the first net-long bias since mid-October. This change in sentiment indicates that speculative traders are positioning themselves for a potential structural breakout to the upside. However, the absence of confirmed volume from institutional desks could postpone any follow-through until after the December Federal Reserve meeting. From an options perspective, the 1-week implied volatility is currently at 7.3%. Additionally, the 25-delta risk reversal has turned positive at +0.18, indicating a slight preference for euro calls over puts, which reflects an improvement in sentiment. Should the pair maintain consolidation above 1.1550 for an extended period, the likelihood of a sustained rally towards 1.1660–1.1700 grows significantly. The lack of hawkish resistance from Fed officials prior to the December blackout period reinforces the optimistic outlook. Traders should remain vigilant regarding U.S. inflation indicators and the forthcoming communications from the ECB next week. Should the Eurozone inflation data for November reflect a further moderation below 2.4%, it may impede the pair’s upward movement by reigniting speculation regarding potential ECB cuts. Conversely, any deviation in U.S. CPI or labor data could swiftly drive EUR/USD to 1.1750, where the next concentration of offers is located.