The EUR/USD strengthened as weak US labour data increased the likelihood of a Federal Reserve rate cut to 90%. The currency pair surged over 0.40% on Wednesday, trading at 1.1668 after touching daily lows of 1.1617.
The US Dollar weakened against the Euro despite strong US services sector data, due to a significant drop in private sector jobs reported by ADP. This backdrop led to a 90% probability of a 25-basis point rate cut at the upcoming Federal Reserve meeting.
Eurozone Economic Performance
In contrast, Eurozone PMIs showed broad improvement, with ECB President Christine Lagarde affirming that inflation aligns with the ECB’s 2% medium-term target. November data revealed gains in Germany’s and France’s PMIs, whereas Spain experienced slower expansion.
EUR/USD traders anticipate upcoming European retail sales data and ECB policymaker speeches, alongside US employment data. Based on a currency heat map, the Euro was the strongest against the US Dollar for the week ending November 29.
Technical analysis shows EUR/USD breaking above 1.1650, with potential testing of 1.1800 by year-end. On the downside, support lies at the 50-day SMA at 1.1610, and further at 1.1580 and 1.1500.
Market Divergence and Strategy
The growing divergence between the Federal Reserve and the European Central Bank is becoming our central focus. As we see it today on December 4, 2025, the market is pricing a 90% probability of a Fed rate cut next week, driven by the weakest US private payrolls data since the 2023 slowdown. This makes holding US dollars less appealing, especially as the Eurozone’s improving economic indicators provide a stable backdrop for the Euro.
For the coming weeks, we should consider buying call options on the EUR/USD, targeting strike prices near the 1.1700 and 1.1800 levels for late December or January expiries. This strategy provides a clear, risk-defined way to capitalize on the pair’s upward momentum while protecting us if upcoming data like US jobless claims unexpectedly strengthens the dollar. The technical break above 1.1650 suggests that paying a premium for this bullish exposure is a prudent move.
We are also watching the rise in implied volatility in EUR/USD options ahead of the Federal Reserve’s meeting. Selling out-of-the-money puts with a strike price below the key support level of 1.1600 could be an effective way to collect premium. This position profits if the EUR/USD continues to rise, moves sideways, or only falls slightly, allowing us to benefit from the market’s heightened state of uncertainty.
This setup reminds us of the pivot discussions back in late 2023, when the market also began aggressively pricing in Fed cuts. For instance, data from that period showed US inflation, measured by the PCE price index, had cooled to 2.6% by November 2023, yet the Fed waited months longer than anticipated to act. That historical patience is a warning, but this time the weakening labor market, unlike the resilient one of 2023, provides a more compelling reason for the Fed to finally cut rates.
