Signs of a cooling labor market and slowing inflation have reinforced the position of FOMC doves. The futures market expects an 89% probability of a Fed rate cut in December, which is putting pressure on the US dollar. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Trade conditions and hedging support the euro.
- The cooling of the US labor market and slowing inflation are putting pressure on the dollar.
- The futures market expects the Fed to cut interest rates.
- Long positions can be considered as long as the EUR/USD remains above 1.162.
Weekly US Dollar Fundamental Forecast
The euro is advancing across the board. Falling energy prices have pushed the eurozone’s terms of trade to their best level this year, while lower currency hedging costs are adding fuel to the EUR/USD pair’s growth. European investors are preparing for the Christmas rally in the S&P 500 index and hedging by selling the US dollar. Pressure on the greenback is mounting amid compelling evidence that the federal funds rate needs to be lowered.
Private sector employment from ADP unexpectedly fell by 32,000 in November, although Wall Street Journal analysts had predicted an increase of 40,000. Despite the PMI Services from ISM reaching a 9-month high, the price index fell to its lowest level since April.
US Private Payrolls
Source: Bloomberg.
FOMC doves are benefiting from a cooling labor market and gradually slowing inflation. They believe that keeping interest rates high will lead to a surge in unemployment. Moreover, this process may become uncontrollable. As for consumer prices, their acceleration is temporary. On the other hand, hawks are worried about inflation, but signs of a slowdown have prompted them to maintain a reserved stance.
PMI Services and Price Index
Source: Bloomberg.
As a result, the odds of monetary policy easing in December reached 89%. The futures market is almost certain that the federal funds rate will be lowered to 3.75%, which, against the backdrop of the ECB’s passivity, creates perfect conditions for EUR/USD bulls.
According to Christine Lagarde, eurozone inflation will remain close to the 2% target in the coming months. The risks are two-sided due to the continuing uncertainty in trade policy. Consumer prices rose to 2.2% in November, and the core indicator rose to 2.4% which does not deter chief economist Philip Lane. According to his estimates, a 10% strengthening of the euro slows CPI by 0.6% over three years. Moreover, the greatest effect is felt after a year. In 2025, the EUR/USD rate has already risen by 12%.
The major currency pair’s rally is likely to accelerate at the end of the year but slow down at the beginning of 2026. According to JP Morgan, the EUR/USD will only rise to 1.2 in 2026, as stronger US economic growth will boost the US dollar. The bank believes the weakness of the greenback is due to accelerating growth outside the United States, the budget and trade deficits, and expectations of further Fed easing.
Weekly EURUSD Trading Plan
It seems that the upward trend in EUR/USD quotes remains strong. As long as the euro is trading above 1.162, long positions can be opened.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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