The dollar's weakness is expanding, with EUR/USD breaking above the key level of 1.1650, as global interest rate cut expectations spread.

The weakness in the employment market has become a major driver for global central banks to cut interest rates. The US ADP data released showed private sector layoffs of 32K in November, far below the expected increase of 10K, and this unexpected performance directly pushed the market probability of a 25 basis point rate cut by the Federal Reserve at the December 9-10 meeting to 90%. Meanwhile, other economies such as Canada are facing similar pressures, and the rate cut cycle is spreading globally.

US Dollar Under Pressure, Euro Rises on Momentum

Affected by the employment data, the US dollar index continued its decline on Wednesday. Although the US services sector remained expansionary in November—ISM Services PMI rose from 52.4 to 52.6, surpassing the market expectation of 52.1—the deterioration in the employment market completely overshadowed the resilience of the services sector.

The EUR/USD currency pair rose sharply, gaining over 0.40% on Wednesday, rebounding from the intraday low of 1.1617 to 1.1668, and successfully breaking through the 1.1650 level, opening a new trading range. The Relative Strength Index (RSI) indicates that buying momentum continues to strengthen, with the possibility of pushing toward 1.1800 and even the year-high of 1.1918.

European Central Bank Signals Dovish Stance, Eurozone Economy Stabilizes and Improves

European Central Bank President Lagarde recently stated that core inflation indicators remain consistent with the ECB’s 2% medium-term target, and the bank expects inflation to stay near the target level in the coming months. This comment reinforced market expectations that the ECB will maintain its current policy stance.

From a data perspective, the eurozone economy is performing better than expected. HCOB services and composite PMI data for November both improved, with services PMI rising to 53.6 from 53.1, marking four consecutive months of growth and reaching the highest level since May 2023. Manufacturing PMI in Germany and France also expanded, while only Spain’s services PMI showed slight deceleration.

Technical Outlook Confirms Uptrend, Support Levels Clearly Defined

After three days of sideways consolidation, EUR/USD finally broke above the key resistance at 1.1650, signaling the start of a new upward channel. Under current bullish conditions, the next target is around 1.1700, with potential testing of 1.1800.

If a technical reversal occurs, the first support level will be at the 50-day simple moving average (SMA) at 1.1610, followed by the 20-day SMA at 1.1580, with ultimate support at 1.1500.

Key Events This Week

Investors should pay attention to European retail sales data and policy speeches by ECB Vice President Luis de Guindos. On the US side, November Challenger layoffs data and the initial jobless claims figures as of November 29 will be important drivers for the dollar’s movement. The confirmation of Canada’s rate cut prospects will also indirectly influence the dollar.

Euro Performance This Week

This week, the euro generally appreciated against major currencies, with the most notable gains against the US dollar. The euro also posted gains against the British pound, Canadian dollar, and Australian dollar, reflecting its relatively strong position.