Euro/USD hovers around the 1.16 level, as easing expectations of US interest rate hikes boost the euro.

Market Focus: Fed December Rate Cut Probability Locked at 85%, Pressuring Dollar Strength Outlook

EUR/USD has risen for two consecutive trading days, reaching a high of 1.1595, up 0.22%. The main driver behind this rally is traders’ strong expectations of the Federal Reserve’s upcoming easing policy. According to CME FedWatch Tool data, the probability of a 25 basis point rate cut in December remains high at 85%, indicating that the market has almost priced in the end of the rate hike cycle for the dollar.

Meanwhile, the US Dollar Index (DXY) also declined 0.21% to 99.57, reflecting a decrease in the dollar’s appeal as a safe-haven asset.

Mixed Economic Data, Market Sentiment Still Favoring a Weak Dollar

Weekly data shows that US initial jobless claims continue to improve. For the week ending November 21, initial claims fell to 216,000, better than the expected 225,000 and below the previous 222,000. This seems to signal a resilient labor market.

However, durable goods orders showed a lukewarm performance. In September, durable goods orders increased by only 0.5% month-on-month, well below August’s 2.9%, though still above the expected 0.3%. The trend clearly slowed down. Excluding transportation and defense, core orders rose 0.9% MoM, exceeding the 0.2% expectation.

This contradictory data has not changed the market’s overall pessimistic bias. Traders generally believe that soft consumer spending, rising household concerns about income prospects and financial conditions have paved the way for the Fed to continue cutting rates.

ECB Attitude Remains Firm, Signaling Limited Room for Rate Cuts

Compared to the Fed’s easing stance, European Central Bank officials have sent relatively hawkish signals. ECB Vice President de Guindos stated that current interest rates are already at a reasonable level. Policy Committee member Vujčić said that further rate cuts must be accompanied by a decline in inflation expectations.

ECB Chief Economist Lane added that to maintain inflation targets, it is necessary to observe further deceleration in non-energy inflation. These statements suggest that the ECB is more likely to keep rates unchanged for the rest of the year, supporting the euro’s upward trend against the dollar.

Technical Outlook: 1.1600 Becomes a Key Threshold

From the chart, EUR/USD has broken above the 20-day Simple Moving Average (SMA) at 1.1556 but faces resistance at the 1.1600 level. The Relative Strength Index (RSI) still shows momentum leaning optimistic but has flattened, indicating an upcoming consolidation phase.

If the pair breaks above 1.1600, bullish pressure will encounter strong resistance at the confluence of the 50-day and 100-day moving averages at 1.1631/1.1646, followed by the psychological level of 1.1700. Conversely, if it falls below 1.1550, the next demand zone is around 1.1500. In a further weakening scenario, the 200-day SMA near 1.1426 will serve as an important support.

The market focus is now clear: the Fed’s insistence on rate cuts versus the declining expectations of dollar hikes. The tug-of-war between these factors will determine the short-term direction of EUR/USD.