The EUR/USD pair faced a rollercoaster ride following the release of the US employment statistics for October-November. The data will not force the Fed to cut rates before March. Moreover, narratives from a year ago may return to the markets. Let's discuss these topics and make a trading plan.
The article covers the following subjects:
Major Takeaways
- US unemployment has soared to a four-year high.
- The Fed is unlikely to cut rates before March.
- In Forex, old rumors are resurfacing.
- Short trades on the EUR/USD pair can be opened below 1.1735.
Weekly US Dollar Fundamental Forecast
When investors saw US unemployment soaring to a four-year high of 4.6% and October employment falling by 105,000, they rushed to sell the US dollar. As always, the markets reacted first, and only then did they begin to analyze the situation. The EUR/USD pair touched 1.18 for the first time since the end of September, only to plummet. Despite the seemingly grim statistics, the Fed is unlikely to cut the federal funds rate before March.
US Nonfarm Payrolls and Unemployment Claims
Source: Bloomberg.
The October slump is linked to the delayed effect of federal employee layoffs. Without it, employment increased by 52,000. Its average monthly growth accelerated to 75,000 in the fall, up from 13,000 in the summer. The rise in unemployment to 4.6% is a worrying sign, but this figure is roughly in line with the FOMC's forecast for the end of 2025.
The Fed will not make any hasty moves. The futures market has not changed its expectations. It continues to assess the chances of a federal funds rate cut in January at 1 in 4 and in March at 1 in 2. The market expects two rate cuts in 2026, the same figure as before the BLS October-November employment report. As a result, the EUR/USD pair returned to its starting point after rallying.
Market Expectations for Fed Interest Rate
Source: Bloomberg.
Traders focused on the fact that US labor market statistics were overshadowed by data on business activity, which slowed on both sides of the Atlantic in December. The main reasons cited were tariffs and trade uncertainty. The US threatened the EU with new import duties if the EU continued to impose restrictions on American companies. Brussels has recently imposed a $140 million fine on Elon Musk's social network X.
US PMI data offered a worrisome signal: input cost inflation accelerated at its fastest pace since November 2022. US firms are absorbing tariffs, which will ultimately lead to faster inflation. The economy may not slow down thanks to the big and beautiful tax cut law, but surging prices will likely force the Fed to pause its monetary expansion cycle for a long time.
As a result, the market may return to the narratives of a year ago. At that time, it was believed that the eurozone economy would suffer more from tariffs than its US counterpart, and that rising inflation would force the Fed to keep interest rates. Against this backdrop, the euro could be sold against the US dollar.
Weekly EURUSD Trading Plan
A long pause in the Fed's monetary policy easing cycle is indeed good news for the greenback. If bulls fail to push EUR/USD quotes back above 1.1735, short trades can be opened in the short term.
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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