Weak US employment data triggers a surge in rate cut expectations, and EUR/USD continues to strengthen.

The probability of a December rate cut by the Federal Reserve surges to 90%, with private sector layoffs data as a key trigger

After signals of weakness in the US labor market, market bets on a rate cut by the Federal Reserve in mid-December have significantly increased. According to the latest ADP report, private sector layoffs in the US reached 32K in November, far below the expected increase of 10K, marking the fastest layoffs pace since 2023. This data quickly reversed market sentiment, with Wall Street traders now pricing in a 90% chance of a 25 basis point rate cut next week.

Meanwhile, the EUR/USD currency pair rebounded strongly during Wednesday’s trading, rising over 0.40%, from an intraday low of 1.1617 to 1.1668. The continued weakening of the dollar contrasted with the euro’s rise, with the dollar index falling 0.61% for the week, while the euro against the dollar increased by 0.61%.

European Central Bank remains cautious, Eurozone data improvements support the rally

Despite resilient US services data—November ISM Services PMI rose from 52.4 to 52.6, surpassing the expected 52.1—this has limited the dollar’s support. Market focus has shifted to the sharp deterioration in the employment market.

The stance of the European Central Bank (ECB) provides support for the euro. ECB President Lagarde recently stated that core inflation indicators remain consistent with the 2% medium-term target, and the central bank expects inflation to stay near the target level in the coming months. This suggests the ECB may remain on hold in the short term, creating conditions for the euro’s relative strength.

Signs of improvement in Eurozone economic data also support the euro’s strength. November HCOB Services PMI rose to 53.6 (from 53.1), and composite PMI also increased. PMI data from Germany and France both showed expansion, reaching the highest levels since May 2023. This improvement in data contrasts sharply with US weakness.

Technical confirmation: EUR/USD breaks key levels

From a technical perspective, EUR/USD, after three consecutive days of consolidation, finally broke through the key resistance at 1.1650, opening a new trading range. In the range between 1.1650 and 1.1700, buying momentum continued to strengthen, confirmed by the RSI indicator.

Recent support levels are at the 50-day simple moving average of 1.1610, the 20-day SMA at 1.1580, and the psychological level of 1.1500. Although the year-high of 1.1918 still seems distant before year-end, testing the 1.1800 level has become a possible short-term target.

Upcoming data schedule and trading opportunities

The market will focus on several key data points ahead. In Europe, investors should watch for Eurozone retail sales data and comments from ECB Vice President de Guindos on policy. In the US, the November Challenger layoffs report and initial jobless claims data through November 29 will be important references for assessing employment trends.

The comparison of these two sets of data may further confirm market expectations for a Fed rate cut and also set the tone for the subsequent EUR/USD movement.