U.S. economic data weakens, euro rises against the trend, prompting a dovish reassessment

The US dollar has recently faced pressure, with EUR/USD recording a 0.51% increase on Tuesday, rising to 1.1579, approaching the 1.1600 level. Behind this rally is the overall weakness of US economic data, especially the sharp deterioration in consumer confidence, which has significantly boosted market expectations of a Fed rate cut in December.

Signs of US Economic Slowdown Emerge, PPI and Consumer Confidence in Focus

In September, the US Producer Price Index (PPI) remained stable, with an annual rate of 2.7%. Core PPI fell from 2.9% to 2.6%, below the expected 2.7%, indicating inflation pressures are easing. Retail sales for the same month increased by only 0.2% month-over-month, far below the 0.6% increase in the previous month, reflecting a shift toward more cautious consumer spending.

More critically, the consumer confidence data from the November meeting committee surprised to the downside. The University of Michigan Consumer Sentiment Index plummeted from 95.5 in October to 88.7, a decline of 6.8 points, the largest monthly drop since April. Due to the government shutdown, pessimism about the labor market, income prospects, and financial conditions surged, directly impacting demand for the US dollar.

Meanwhile, the US Dollar Index (DXY) fell to 99.81, down 0.37%, breaking below the 100.00 level for the first time, further confirming the dollar’s weak trend.

Germany’s Stagnation Does Not Deter Euro’s Rise; Currency Pair Volatility Increases

Although Germany’s Q3 GDP grew zero quarter-over-quarter, with only 0.3% annual growth, this in-line weak data posed little resistance to the euro’s rise. The stagnation in Europe’s largest economy highlights that the euro’s appreciation is mainly driven by the dollar’s decline rather than euro strength itself.

In this week’s currency performance, EUR/USD led with a 0.46% increase. Meanwhile, the weakening dollar index has also prompted a risk reassessment across markets, with currencies like the pound and yen, considered safe havens, performing relatively steadily.

Market Reprices Fed Policy, Traders Watch Initial Jobless Claims Closely

As inflation data softens and consumer confidence collapses, market consensus now expects the Fed to cut rates at the December FOMC meeting. Traders will focus on the weekly initial jobless claims (seasonally adjusted for Thanksgiving holiday), which will further confirm the cooling of the US labor market.

The dollar’s weakening has created a self-reinforcing cycle: weak economic data → rising rate cut expectations → dollar sell-off → euro rally. This dovish re-pricing process is expected to continue fermenting over the coming weeks.

Technical Outlook: EUR/USD Breaks Above Moving Averages, 1.1600 as a Key Test

Technical charts show EUR/USD has broken above the 20-day simple moving average (SMA) at 1.1556 and is testing higher levels. If the price successfully breaks through 1.1600, the next resistance will be in the 1.1631 to 1.1646 zone, where the 50-day and 100-day SMAs converge, followed by the psychological level of 1.1700.

Conversely, if the price falls below support at 1.1550, bears may target levels at 1.1500 and below, with further support at the November 5 low of 1.1468 and near the 200-day SMA at 1.1409.

In the short term, the stability of the PPI, weak retail sales, and deteriorating consumer confidence have built a fundamental case for euro appreciation. Technical breakthroughs are expected to reinforce this trend.