The EUR/USD pair gained strength after weak US labor data raised the chances of a Federal Reserve rate cut to 90%. On Wednesday, the pair increased by over 0.40%, trading at 1.1668 after dipping to daily lows of 1.1617. Despite robust data from the US services sector, the US Dollar weakened against the Euro. This was mainly due to a significant drop in private sector jobs reported by ADP, leading to a 90% chance of a 25-basis point rate cut at the upcoming Federal Reserve meeting.

Eurozone Economic Performance

In the Eurozone, PMIs showed overall improvement. ECB President Christine Lagarde confirmed that inflation is on track with the ECB’s 2% medium-term goal. November data showed gains in PMIs for Germany and France, while Spain saw slower growth. Traders in the EUR/USD market are watching for upcoming European retail sales data and speeches from ECB policymakers, as well as US employment data. According to a currency heat map, the Euro was the strongest against the US Dollar for the week ending November 29. Technical analysis indicates that EUR/USD has broken above 1.1650, with potential to test 1.1800 by the end of the year. Support is at the 50-day SMA level of 1.1610, with further support at 1.1580 and 1.1500.

Market Divergence and Strategy

The growing gap between the Federal Reserve and the European Central Bank is becoming increasingly important. As of December 4, 2025, the market predicts a 90% chance of a Fed rate cut next week, driven by the weakest US private payrolls data since the 2023 slowdown. This makes the US Dollar less attractive, especially with the Eurozone showing improved economic signs. In the coming weeks, we recommend buying call options on the EUR/USD, targeting strike prices around 1.1700 and 1.1800 for late December or January expirations. This strategy offers a clear, risk-managed way to take advantage of the upward trend in the pair while also protecting against stronger US job data that might boost the dollar. The technical break above 1.1650 supports paying a premium for this bullish position. We are also monitoring the rising implied volatility in EUR/USD options ahead of the Federal Reserve’s meeting. Selling out-of-the-money puts with a strike price below the crucial support level of 1.1600 could be a smart strategy to generate premium income. This approach benefits if the EUR/USD rises, remains steady, or only falls slightly, allowing us to take advantage of the market’s increased uncertainty. This strategy calls to mind the pivot discussions from late 2023 when the market began aggressively anticipating Fed cuts. Data from that time showed that US inflation, as measured by the PCE price index, dipped to 2.6% by November 2023. Still, the Fed delayed action longer than many expected. However, the current weak labor market presents a stronger case for the Fed to cut rates than the resilient one from 2023. Create your live VT Markets account and start trading now.

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