The EUR/USD pair concluded the week at approximately 1.1601, reflecting a weekly increase of 0.81% and a monthly rise of 0.59% for November. The recent action comes in light of the ongoing decline in the US Dollar Index, which has fallen to 99.44 as market participants raised their expectations for a 25-basis point rate cut during the upcoming December FOMC meeting. Federal Reserve officials John Williams and Christopher Waller emphasized this dovish position, leading to an increase in rate-cut probabilities to 87% as indicated by the source. The adjustment in US policy has expanded the yield differential between Europe and the U.S., thereby bolstering the euro. The recent remarks from the Federal Reserve highlight a focus on risk management rather than solely combating inflation, in contrast to the European Central Bank, which indicates a pause but has not yet reversed its tightening trajectory. Germany’s Harmonized Index of Consumer Prices for November increased by 2.6% year-over-year, surpassing the consensus estimate of 2.4%, and indicating a notable rise from the 2.3% recorded in October. In the meantime, France’s GDP experienced a growth of 0.1% quarter-over-quarter, while Spain’s inflation rate reached 3.1%, marginally exceeding expectations.
The data indicates that inflation in Europe continues to be persistent, which may lead the ECB to adopt a more cautious approach to easing in early 2026. The differing paths of inflation in Europe and the U.S. — highlighted by the core PCE index in the U.S. falling to 3.5%, marking a two-year low — has played a crucial role in shaping the momentum of EUR/USD. The Euro’s short-term technical structure indicates strong demand around the 1.1550 support level, with buyers targeting a move towards the 1.1650–1.1700 range, where the 50- and 100-day moving averages intersect. The EUR/USD pair’s relative strength index is currently showing a mildly positive trend, yet it is flattening around 56, suggesting a phase of momentum consolidation instead of exhaustion. Key resistance is identified at 1.1650, with the subsequent level at 1.1700, which corresponds with the highs observed in October. On the downside, immediate support is positioned at 1.1550, with subsequent levels at 1.1500 and 1.1468 — the swing low observed in early November. A daily close above 1.1620–1.1643 (50/100-day SMA cluster) would indicate a continuation toward 1.17, with potential for acceleration if US yields persist in retreating below 4.1% on the 10-year Treasury.
The implied volatility for EUR/USD has increased to 7.5%, indicating a rise in uncertainty in anticipation of the forthcoming U.S. ISM, ADP employment, and inflation reports. Following the Thanksgiving holiday, trading volumes have been relatively low; however, institutional flows indicate a trend towards the accumulation of euro positions. Option traders are showing a preference for short-dated EUR/USD calls aimed at the 1.1650–1.17 range, indicating a strong belief in the upcoming bullish momentum. Meanwhile, large speculative positions in CFTC data indicate euro longs expanded by 18,000 contracts last week — the largest build since August — signaling renewed conviction that the dollar’s cyclical strength is fading. Current market expectations indicate three Fed rate cuts by mid-2026, whereas the ECB’s tightening cycle seems to have concluded, though there is no immediate easing on the horizon. This policy gap supports the structural strength of the euro as the dollar remains in its corrective phase from the DXY 100.22 resistance level.
The euro’s underlying fundamentals continue to exhibit strength, despite the indications of short-term volatility. The trade surplus in the region has expanded to €23.4 billion, in contrast to the ongoing twin deficits in the U.S. The expanding fiscal gap and the Federal Reserve’s accommodating position highlight potential downside risks for the USD, maintaining support for EUR/USD within the 1.1550–1.17 range throughout December. Should the EUR/USD pair maintain levels above 1.1600, both technical indicators and macroeconomic factors suggest a potential for additional gains. A confirmed breakout above 1.1650 paves the path to 1.17–1.1720, whereas a failure to maintain 1.1550 may lead to a retracement to 1.15, where significant buyers are expected to re-enter the market. With dovish Fed expectations at 87%, elevated volatility, and Eurozone inflation surprising higher, the outlook remains optimistic for December. Market participants ought to keep a close eye on the December ISM PMI and the revisions to the German CPI for insights into potential market direction.