The EUR/USD pair increased to 1.1660 after reaching 1.1675, its peak since October 20, influenced by a widespread decline in the U.S. Dollar. Market participants are currently factoring in a nearly guaranteed 25-basis-point rate cut at the forthcoming Federal Reserve meeting on December 10, as weak U.S. employment data has added to the bearish sentiment surrounding the Greenback. The ADP Employment Change report indicated a decrease of 32,000 jobs, falling short of the anticipated 5,000 increase, further supporting the narrative of a decelerating private-sector momentum. The U.S. 10-year Treasury yield has decreased to 4.06%, continuing its multi-week downtrend, as traders expect further declines toward 3.90% if rate-cut expectations grow stronger. While there was a slight increase in ISM Services PMI to 52.6 from the previous 52.4, the underlying components indicate ongoing weakness. The Employment Index has contracted for the sixth consecutive month, registering at 48.9, while New Orders have decreased to 52.9, a significant drop from the previous 56.2. The Prices Index has decreased to 65.4, indicating a reduction in inflationary pressures. In the meantime, the S&P Global Services PMI decreased to 54.1 from 54.8, representing its lowest level in five months. The weak ADP data further solidified market expectations that the Federal Open Market Committee is likely to implement a rate cut in the upcoming week. Sources currently indicates a 90% likelihood of a rate cut, an increase from 63% just a month prior, reinforcing the bullish outlook for EUR/USD.
In Europe, macroeconomic indicators provide additional backing for the Euro. The Eurozone Composite PMI increased to 53.6, a rise from the previous 53.1, while Germany’s Services PMI saw a slight improvement to 53.4. Inflation data indicated stability, with the headline CPI recorded at 2.2% (compared to 2.1% previously) and core CPI remaining steady at 2.4%, alleviating concerns regarding a resurgence of disinflation. The current stability enables the European Central Bank to uphold its restrictive approach, in contrast to the Federal Reserve’s shift towards a more accommodative stance. The yield spread between Germany and Italy has contracted to 70 basis points, marking its lowest level since 2010. This development highlights a positive shift in sentiment within the Eurozone’s bond markets and contributes to a decrease in risk premiums associated with the single currency. Recent geopolitical developments have also bolstered the resilience of the Euro. Russia’s recognition of “constructive” discussions surrounding U.S.-mediated peace proposals in Ukraine has moderated the influx of safe-haven investments into the U.S. Dollar. While a definitive breakthrough remains unverified, the easing of war rhetoric has positively influenced regional confidence. At the same time, market speculation regarding the possible selection of Kevin Hassett—a recognized dove—for the next Federal Reserve Chair heightened expectations for extended monetary easing during the Trump administration, which contributed to a decline in the Dollar.
The EUR/USD structure continues to exhibit a robust bullish trend. The pair is positioned strongly within an ascending channel, maintaining levels above its 50-day EMA (1.1606) and 200-day EMA (1.1583). The recent breakout above 1.1650 has confirmed a shift in trend momentum, with the next resistance levels identified at 1.1728—the previous swing high—and 1.1800, a psychological level that may draw in momentum buyers. The RSI is currently at 68, indicating that bullish conditions are overextended; however, there are no immediate signs of a reversal at this time. Current immediate support is established at 1.1600, with subsequent support levels at 1.1550. Additionally, there is significant structural support located around 1.1480–1.1500, which corresponds with the base of the November consolidation. Retail and institutional sentiment continues to show a preference for the Euro. OANDA client data reveals a 74% net-long position in EUR/USD, whereas hedge fund positioning, as reported by the CFTC Commitment of Traders, reflects a net increase of 12,000 contracts in Euro longs last week. This indicates the fourth consecutive week of speculative buying, implying a strong belief in the continued appreciation of the Euro. In the options market, implied volatility has decreased to 6.2%, marking its lowest level since August, which suggests a measured bullish momentum rather than a reactionary short-covering scenario.
The U.S. Dollar Index is experiencing notable downward momentum, currently at 99.20, marking its lowest point since November 14. The USD/JPY pair decreased to 144.60, indicating a contraction in U.S.–Japan yield differentials, whereas GBP/USD increased by 0.72% to 1.3310. These developments highlight a widespread decline of the Dollar, aligning with the Federal Reserve’s policy direction and diminishing inflationary pressures. The cooling of the U.S. labor market is contributing to a decline in the Dollar’s relative yield advantage, reinforcing the upward trajectory of the Euro. Short-term traders are focusing on 1.1728, whereas medium-term forecasts indicate a move toward 1.1830, contingent upon the Fed affirming its dovish stance next week. Nonetheless, the current overbought technical conditions could lead to temporary corrections towards 1.1600 or 1.1575, presenting possible re-entry opportunities for long positions. As long as EUR/USD remains above its 200-day EMA, the outlook continues to be strongly positive. Recent institutional models from Deutsche Bank and ING indicate an average EUR/USD rate of 1.21 for 2026, highlighting the Dollar’s structural weaknesses as global capital flows increasingly favor Eurozone bonds and equities. Considering the prevailing fundamentals and market dynamics, EUR/USD continues to exhibit a bullish trend. The ongoing softness in U.S. employment, consistent inflation in the Eurozone, and the contraction of bond spreads collectively support the Euro’s position. A breakout above 1.1728 would indicate a potential acceleration towards 1.1800 and possibly 1.1900 by early 2026. Provided the pair stays above the 1.1550 support level, the overall trend indicates an upward movement. The current trade bias indicates a Buy position, with medium-term indicators suggesting sustained Euro strength against a declining Dollar.