Insights 
VT 
EUR/USD remains steady near two-week highs as traders evaluate mixed PMI data from the US and Eurozone. ISM Manufacturing PMI drops to 48.2, indicating deeper contraction, while the S&P Global PMI rises to 52.2, signifying an expansion.
The US Dollar slightly recovers from recent lows but remains under pressure due to expected December interest rate cuts by the Federal Reserve. The US Dollar Index (DXY) is trading around 99.20, after reaching lows near 99.01, affected by declining PMI numbers.
Significant PMI Movements
The ISM Manufacturing PMI’s drop to 48.2 underscores nine consecutive months of contraction, with the New Orders Index and Employment Index also declining. Conversely, the S&P Global US Manufacturing PMI reflects improved production and employment conditions, pointing to a more positive outlook.
In the Eurozone, the latest Eurozone Manufacturing PMI shows continued softness, decreasing to 49.6 in November. The upcoming week includes significant economic data releases for both the Eurozone and the US, including the Eurozone HICP preliminary reading and US ISM Services PMI and PCE inflation report.
Current currency movements display US Dollar’s changing strength against major global currencies. Notably, USD gains against the Japanese Yen, while EUR gains against USD. The forex market awaits potential moves influenced by upcoming economic data.
The market is clearly positioned for a weaker US Dollar, driven by strong expectations that the Federal Reserve will cut interest rates at its December 10th meeting. With the EUR/USD pushing towards two-week highs around 1.1630, the path of least resistance appears to be upward for the pair. This sentiment is fueled by a string of softening economic data, which we see as reinforcing the case for the Fed to ease policy.
Market Sentiment and Strategy
To add credibility to this view, we can point to the broader trend in 2025. The last Non-Farm Payrolls report in November showed a gain of only 110,000 jobs, missing forecasts, while Personal Consumption Expenditure (PCE) inflation has cooled to 2.5% year-over-year, down significantly from the highs we saw a couple of years ago. The CME FedWatch Tool reflects this, currently pricing in an 85% probability of a 25-basis-point cut next week, making the upcoming PCE report this Friday a critical checkpoint.
However, the mixed PMI signals introduce a note of caution that we cannot ignore. While the ISM manufacturing survey points to a deepening contraction at 48.2, the S&P Global PMI suggests expansion at 52.2, creating a confusing picture. This week’s ISM Services PMI will be crucial, as a strong reading there could challenge the narrative of a widespread economic slowdown and cause a sharp reversal in the Dollar.
For derivative traders, this environment suggests buying EUR/USD call options with expirations after the Fed meeting could be a prudent strategy. This allows participation in potential upside if the Dollar weakens further post-cut, while capping risk if strong data this week forces the Fed to hold steady. The conflicting data is likely keeping implied volatility elevated, making defined-risk strategies more attractive than outright spot positions.
Looking back, we’ve seen similar situations where the Fed begins an easing cycle despite some pockets of economic strength, such as the mid-cycle adjustment in 2019. The central bank tends to react to the trend in slowing growth and inflation, which seems to be the dominant theme right now. Therefore, we believe that any surprise strength in upcoming US data would likely only postpone, not cancel, the eventual rate cut.
