The Federal Reserve's December rate cut hopes dashed, Euro faces a double blow

The Federal Reserve’s meeting minutes released on Wednesday delivered a heavy blow to the market— the probability of a rate cut in December instantly dropped from 42% to 33%. As a result, the euro against the US dollar fell by 0.49%, hitting a recent low of around 1.1524. The minutes clearly signaled a hawkish stance, with internal disagreements within the Federal Reserve over further easing policies becoming evident.

Serious Disagreement Within the Fed, Most Officials Oppose Preemptive Liquidity Release

The key information disclosed in the minutes energized the market. According to the meeting records from October 28-29, there was significant disagreement within the Federal Open Market Committee (FOMC) regarding a rate cut. Most members believe that, given the still-weak signals in the labor market, continuing to pursue easing could risk solidifying inflation expectations, and therefore oppose a hurried rate cut in December.

More specifically, Fed officials’ views on the policy path can be categorized into three groups: some advocate for a direct rate reduction in December; others acknowledge the need for future rate cuts but believe they are not required to be implemented within the December window; while the majority have ruled out the possibility of a rate cut in December, preferring to keep rates steady to observe more data.

European Inflation Near Target, Euro Faces Strong Dollar Suppression

Meanwhile, relatively positive news came from the eurozone inflation data. In September, the Harmonized Index of Consumer Prices (HICP) for the eurozone fell from 2.2% in August to 2.1%, already very close to the European Central Bank’s 2% policy target. Core inflation was 2.4% year-on-year, indicating some easing of overall inflation pressures.

However, this good news has limited support for the euro. Besides the direct impact of the hawkish signals from the Fed, the euro is also being suppressed by a strong dollar. The US Dollar Index (DXY), which measures the dollar against six major currencies, rose 0.54% on Wednesday to 100.13, tracking the dollar’s appreciation. Under this double pressure, the euro’s room to decline is severely constrained.

Data Outlook and Market Focus Shift

Looking at the upcoming economic calendar, the US will release September non-farm payrolls, with economists expecting an increase of 50,000 jobs, a significant improvement from August’s 22,000. Additionally, initial unemployment claims and speeches by Fed officials are scheduled, all of which will be important references for the market to assess the Fed’s rate cut timetable.

In Europe, the data schedule is relatively light, with traders paying more attention to the eurozone consumer confidence index.

Technical Analysis: Euro Support Levels Gradually Disintegrate

From a technical perspective, EUR/USD has fallen to a two-week low of 1.1517. Importantly, buying pressure has failed to recover the 1.1600 level, indicating that the hawkish expectations from the Fed have completely shattered the market’s recent bets on a rate cut.

If the euro continues to weaken and breaks below the 1.1500 round number, the next key support level will be the low of 1.1468 created on November 5. Should that level also be breached, the 200-day simple moving average (SMA) at 1.1393 could serve as the ultimate line of defense.

Conversely, to reverse the downward trend, the euro needs to break above the 100-day SMA at 1.1574, then recover above the 20-day SMA at 1.1578 and the psychological level of 1.1600. Only by successfully stabilizing above these levels can it open the way to challenge the key resistance at the 50-day SMA (1.1650).