Euro/USD is stuck in a tug-of-war: Strong non-farm payroll data has actually reinforced expectations of interest rate cuts.

This week’s forex market staged an interesting reversal. The US September non-farm payrolls came out much better than expected, but the EUR/USD did not rise with the dollar; instead, investors began to increase bets on the possibility of a rate cut at the Fed’s December meeting—rising from 29% to 39%. As of writing, EUR/USD is trading around 1.1533, slightly supported compared to earlier in the week.

Stronger-than-expected employment data but boosting rate cut expectations?

It seems contradictory, but it actually reflects the market’s敏感捕捉 of the Fed’s policy shift. Non-farm payrolls increased by 119K, far exceeding the expected 50K, marking a clear rebound since August. Meanwhile, initial jobless claims fell to 220K, hitting a new low since September, all indicating resilience in the labor market.

However, the unemployment rate rose from 4.3% to 4.4%, a signal that has prompted the market to reassess the Fed’s monetary policy direction. Although the unemployment rate remains below the Fed’s 2025 forecast of 4.5%, the upward trend is enough for traders to adjust their expectations for the timing of rate cuts.

Fed officials’ comments diverge, market senses policy turning point

The dovish camp, including Chicago Fed President Goolsbee, Cleveland Fed President Harker, and Fed Governor Bal, expressed concerns about premature rate cuts. Bal is uneasy that the 3% inflation rate has not yet returned to the 2% target, Goolsbee believes current inflation has stagnated, and Harker warned that further easing in a context of already loose financial conditions could prolong high inflation and encourage excessive risk-taking.

However, these warnings have not changed market expectations for rate cuts—in fact, they indicate internal Fed policy debates are beginning. This uncertainty has driven investors to adopt a defensive stance toward the euro.

Eurozone data stable, but confidence indicators remain lukewarm

Eurozone November consumer confidence was at -14.2, unchanged from October, representing a relatively better level since February, but overall sentiment remains weak. German producer prices mostly met expectations, providing no significant boost to the euro. Nonetheless, the relatively stable data environment offers some basic support for the euro.

The US dollar index (DXY) rose 0.10% to 100.22, measuring the dollar’s strength against six major currencies. While it has moved higher, the pace is moderate, limiting downside for the euro and reflecting cautious market sentiment toward the dollar.

Technical outlook: EUR/USD in stalemate, key support to be tested

EUR/USD is ending a four-day decline but still hovers below 1.1550, an important level approaching the resistance zone at 1.1646/54. This resistance coincides with the confluence of the 50-day and 100-day simple moving averages (SMA). A breakout above could challenge the 1.1700 level.

However, the Relative Strength Index (RSI) still shows weak momentum, leaning toward downside risks. Key support is at 1.1500; a further break below would expose the 200-day SMA at 1.1395. Based on the performance of the dollar index (DXY), if it continues to gradually rise, it will further suppress the euro’s rebound potential.