U.S. PMI Data Weakness Weighs on the Euro; Fed Officials' Divergent Views Ignite Rate Cut Expectations

EUR/USD experienced a significant retreat this Friday morning, with the dollar strengthening again. The pair fell to 1.1504, down 0.20% from earlier levels, and touched a two-week low of 1.1491 earlier. The behind-the-scenes drivers are the uneven U.S. economic data and the divergence of opinions within the Federal Reserve.

## Mixed U.S. Data, Consumer Confidence Hits Over a Decade Low

The U.S. PMI data released today presents a complex picture. In manufacturing, the S&P Global index declined from 52.5 in October to 51.9 in November, slightly below the expected 52. Service sector data was more resilient, with PMI rising modestly from 54.8 to 55, surpassing expectations and indicating continued activity resilience in that sector.

More noteworthy are the weak signals from the U.S. consumer side. The University of Michigan's latest consumer confidence preliminary index was only 51, slightly above the initial reading of 50.3 but down from 53.6 in October. The survey shows increased pessimism among U.S. households regarding economic prospects, mainly due to concerns over high prices and slowing income growth. This indicator has fallen near the lowest levels since 2009.

Good news comes from the employment market. The U.S. Bureau of Labor Statistics reported 119K non-farm jobs added in September, well above the expected 50K. Although the unemployment rate rose from 4.3% to 4.4%, it remains within the Federal Reserve's tolerable range.

## Divergent Fed Officials' Views Prompt Rapid Market Rate Cut Expectations

After the data release, the market's focus shifted to statements from Fed officials. New York Fed President John Williams signaled a clear dovish stance, indicating that the decision-makers might still consider rate cuts "in the near term." Fed Governor Stephen M. Miller also expressed support, noting that Thursday's employment data supports a rate cut in December, even stating that if his vote were decisive, he would favor a 25 basis point cut.

On the other hand, the opposing views are equally influential. Dallas Fed President Lori Loughlin maintained a hawkish stance, emphasizing the need to "hold rates steady for a period" to assess the actual impact of current policies on inflation. She explicitly said that a December rate cut "would be difficult." Boston Fed President Susan Collins shared a similar view, stressing that "current tightening policies remain appropriate."

This ideological split directly pushed up market expectations for a rate cut. Early in the day, market participants estimated only a 31% chance of a December cut, but as dovish officials' comments became public, this probability surged to 71%, reflecting traders' optimism about a policy shift.

## ECB Signals Status Quo, Euro Lacks Upward Momentum

In contrast, the European Central Bank's stance appears more cautious. ECB Governing Council member Joachim Nagel expressed confidence in the ECB's ability to complete its inflation mandate, implying no immediate need for policy adjustments. Vice President Luis de Guindos assessed current growth risks as balanced, considering the policy rate appropriate.

Eurozone data shows manufacturing activity contracted in November, with PMI falling from 50 in October to 49.7, below the 52 forecast. Services rebounded slightly, with PMI rising to 53.1, but overall performance was less impressive than U.S. data for the same period. These internal and external differences exert pressure on the euro.

## Technical Outlook: Bears Dominate, 1.1491 Key Support

From a chart perspective, EUR/USD has resumed its downtrend, currently hovering around 1.1500. A daily close below 1.1491 would open the door for further declines. Technical support levels are at the November 5 low of 1.1468 and near the 200-day moving average at 1.1405.

A rebound would require reclaiming the 20-day moving average at 1.1566, then challenging the confluence of the 50-day and 100-day moving averages at 1.1641/1.1650, with the ultimate target around 1.1700. The current market sentiment remains bearish, with limited upside potential.