US Expectations Impacting Euro

The Euro has risen to a two-week high, passing 1.1630 against the US Dollar. This increase happens even as Eurozone manufacturing activity declines because the US Dollar is weakening due to expectations of interest rate cuts by the US Federal Reserve. Key events to watch include US manufacturing data and a panel discussion featuring Federal Reserve Chair Jerome Powell. The Euro’s gain is bolstered by the easy prediction of a 25 basis point rate cut next week. The US ISM Manufacturing PMI—a major indicator of business activity—is expected to slip from 48.7 to 48.6. Analysts will pay close attention to the Prices Paid sub-index and the employment metrics. Even though Eurozone manufacturing data is weak, the Euro is still gaining. The final HCOB Manufacturing PMI fell to 49.6 in November. In currency movements, the Euro is getting stronger against the New Zealand Dollar. Upcoming events on the economic calendar include Eurozone HICP and US employment data. Technically, the EUR/USD pair has broken through the resistance level of 1.1615, with further resistance predicted at the 1.1660 – 1.1670 range. Immediate support is seen at 1.1550, with additional support expected at 1.1500.

US Dollar Weakness Drives Trends

The US Dollar is under pressure as the market anticipates a Federal Reserve interest rate cut next week. This has propelled the EUR/USD to two-week highs, and the trend seems likely to continue shortly. The main reason is broad-based Dollar weakness rather than strong Euro performance. Given this trend, we think buying call options on the EUR/USD is the best move. A strike price around 1.1650 with an expiration in late January 2026 would enable us to benefit if the price moves toward the 1.1730 resistance. This strategy offers defined risk while capturing potential gains. The case for a weaker dollar received further support from the ISM Manufacturing PMI for November, which came in at 48.1. This is lower than the predicted 48.6 and last month’s figure of 48.7, indicating a quicker contraction in US factory activity. This disappointing news will likely strengthen expectations for the Fed’s upcoming rate cut. Next up is the Personal Consumption Expenditures (PCE) price index data expected this Friday. The latest data from October showed Core PCE inflation at 2.8% year-over-year, and we expect this week’s November report to drop to 2.7% or 2.6%. A soft inflation reading would give the Fed the go-ahead to ease monetary policy. We recall a similar situation in late 2023 when the dollar weakened as the market anticipated the end of the Fed’s rate hikes. Current sentiments are much the same, with traders positioning for a range of cuts throughout 2026. This historical context suggests the dollar’s trajectory is likely downward. It’s worth noting that the Euro lacks solid fundamental support, with its manufacturing PMI recently revised down to a five-month low. However, in currency exchange, everything is relative, and the focus is mainly on US interest rates, making a long EUR/USD position a straightforward bet against the dollar. While our primary outlook is bullish on EUR/USD, it’s crucial to observe the upcoming Eurozone inflation data due this Tuesday. A surprisingly low Harmonized Index of Consumer Prices (HICP) might temporarily slow the Euro’s ascent. Traders should consider buying inexpensive out-of-the-money put options as a short-term hedge against potential unexpected data from Europe. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now