The strengthening of the US dollar is putting pressure on the euro, and dovish Fed disagreements are fueling market expectations of rate cuts.

On Friday during the US trading session, the EUR/USD exchange rate declined to 1.1504, a drop of 0.20%, with the intraday low touching 1.1491. This decline was not caused by a single factor but resulted from the combined effects of complex signals from US economic data and divergent positions among Federal Reserve officials.

Economic Data-Driven: US Resilience and Consumer Pessimism Contradiction

US November economic data showed a “mixed hot and cold” situation. On the positive side, the S&P Global Services PMI rose from 54.8 in October to 55, surpassing expectations and indicating continued expansion momentum in the service sector. Meanwhile, US non-farm payrolls added 119,000 jobs in September, well above the expected 50,000. The unemployment rate rose from 4.3% to 4.4%, but remains within the Federal Reserve’s tolerable range.

Manufacturing PMI performed poorly, falling from 52.5 in November to 51.9, slightly below the 52 forecast, reflecting signs of a slowdown in industrial expansion.

More concerning is consumer sentiment. The University of Michigan Consumer Confidence Index rose from the preliminary 50.3 to 51, seemingly an improvement, but it is significantly lower than October’s 53.6. More importantly, the index has reached its lowest level since 2009. Consumers are frustrated with high prices and sluggish income growth. Inflation expectations have eased somewhat (down from 4.7% to 4.5% for 1-year outlook), but overall confidence remains fragile.

Divergence Among Fed Officials: Rapid Rise in Rate Cut Expectations

There are clear disagreements within the Federal Reserve regarding future policy directions, leading to intense market reactions. New York Fed President John Williams stated that policymakers might take rate cuts “in the near term.” Fed Governor Stephen M. Mullan further indicated that the employment data released on Thursday supports a rate cut in December, explicitly stating he “would vote for a 25 bps rate cut if my vote were decisive.”

The hawkish camp’s voices are also loud. Dallas Fed President Lori Loughlin advocates for keeping interest rates “unchanged for a period” to assess the actual impact of current policies on inflation. She emphasized her stance of “difficult to support a rate cut in December.” Boston Fed President Susan Collins said “the current tightening policy is very appropriate,” implying support for holding steady.

This extreme divergence in officials’ statements ultimately pushed the market’s probability of a rate cut in December from 31% in the early session to 71%, with investors’ expectations for a shift toward easing policies clearly warming.

European Central Bank Signals Stability, but Manufacturing Not Optimistic

ECB Executive Board member Isabel Schnabel expressed confidence in fulfilling the inflation mandate, while Vice President Luis de Guindos believes growth risks are balanced and the policy rate level is appropriate. These statements suggest limited room for recent policy adjustments by the ECB.

However, the Eurozone November manufacturing PMI fell from 50 in October to 49.7, below the 52.2 forecast, re-entering contraction territory. In contrast, the services PMI rose to 53.1, exceeding expectations. This divergence indicates uneven economic momentum in the Eurozone, with manufacturing weakness putting pressure on the overall outlook.

Technical Outlook: Bearish Momentum Extends, Support Levels Key

The technical structure of EUR/USD indicates that the downtrend has not yet reversed. Currently trading around 1.1500, a daily close below 1.1491 would open further downside space. Next support levels are the November 5 low at 1.1468 and the 200-day simple moving average near 1.1405.

To turn the bullish tide, a break above the 20-day simple moving average at 1.1566 is needed, followed by resistance at the confluence of the 50-day and 100-day moving averages at 1.1641/1.1650. Beyond that, the key psychological level is 1.1700.