EUR/USD (1.1132) Erases Weekly Gains as the Dollar Rallies on Strong Payrolls — 1.1100 Break Opens 1.1000 Before the ECB’s December 17 Decision

EUR/USD is trading at 1.1132, down 0.77% on Friday. The drop cancels every gain the pair made this week. Two days ago, after Democrats took both chambers of Congress, the dollar hit a one-month low and the euro rose to just under 1.1300, its highest level since early October. Friday’s October US jobs report reversed that whole move in one session. The euro opened the Asian session near 1.1215, fell to 1.1200 before the release, and dropped another 70 pips once the report came out at 8:30 a.m. ET.

The trigger was a blowout US labor report. Nonfarm payrolls rose 165,000 against a 65,000 forecast. September was revised up from 29,000 to 60,000. Unemployment fell to 4.1% from 4.2%, and wage growth beat estimates. The odds of a December Fed hike moved to 74.8%. The 10-year Treasury yield rose more than 6 basis points to 4.90%, and the 2-year yield touched 4.54%. The dollar gained 0.77% against the euro, 1.12% against the Australian dollar and 1.20% against the New Zealand dollar.

The core argument of this forecast is that the two central banks are not really diverging. Both are tightening. What separates them is the economies underneath. The Fed is raising rates into a labor market that just added 165,000 jobs with wages up 3.1% a year. The ECB is preparing to raise rates into an economy where headline inflation is 4.0% almost entirely because energy prices are up 20.8%, while core inflation is stuck at 2.5%, France and Italy have stopped growing, and French 10-year borrowing costs went above 5% last month. A hike justified by strong growth helps a currency. A hike forced by an energy shock usually does not.

The structure of the pair matches that story. EUR/USD has been below its 200-day exponential moving average, just above 1.1450, since mid-September. Wednesday’s high stopped right under the 50-day exponential moving average, just above 1.1300. Speculators are still heavily net short the euro, at 231,000 long contracts against 374,000 short. The October 29 low just above 1.1100 is the only major support between the current price and the 1.1000 handle.

Our base case through the Fed’s December 9 decision and the ECB’s December 17 decision is a range from 1.1050 to 1.1300, with a bearish lean. A daily close below 1.1100 would point to 1.1050 and then 1.1000, 1.2% below the current price. A daily close back above the 50-day EMA at 1.1300 would cancel the bearish lean and put 1.1415 in play, 2.5% above the current price.

From 1.1100 to 1.1300 and Back: The Midterm Round Trip

The pair’s path over the last week shows how sensitive EUR/USD has become to US political and data surprises. On October 29 it fell to just above 1.1100, its low for the month, after the ECB held rates, Christine Lagarde announced she would leave the bank early, and the Fed held at 3.75% to 4.00% with a hawkish tone. On October 30, US September PCE inflation came in at 3.6% a year, which pushed the dollar higher into the weekend.

The election changed the direction. On Tuesday, November 3, voters gave Democrats control of both the House and the Senate. On Wednesday, the dollar fell to a one-month low as the market priced in fiscal discipline from a divided Washington and a lower chance of new inflationary policy. Treasury yields dropped and oil fell on expectations that the result would speed up a de-escalation in the US-Iran war. EUR/USD rose to just under 1.1300, its highest level since early October.

The rally ran out of room at a well-defined technical level. The 50-day EMA, just above 1.1300, capped the move, and daily momentum turned down from overbought. On Thursday the US equity crash brought in safe-haven buying for the dollar. The Nasdaq fell 5.52% and the S&P 500 lost 4.36% on fears about AI data-center regulation. EUR/USD went back to 1.1200 by Thursday’s close, giving back a third of the rally from the October 29 low.

Friday finished the reversal. Overnight, the pair drifted to 1.1215 in Asian trade as markets turned cautious before the payroll release. After the 165,000 headline and the upward revision to September, it fell through 1.1200 and the middle Bollinger Band at 1.1195, then reached the lower band near 1.1130. At 1.1132, EUR/USD is back below where it started the week and only 30 pips above the October 29 low.

The lesson from the round trip is that the market treated the election as a temporary dollar negative and the jobs report as a lasting dollar positive. Political news that cut US fiscal risk supported the euro for 48 hours. Economic data showing the US is still growing faster than Europe took that support away within an hour. As long as US data keep beating forecasts, rallies in EUR/USD are likely to be capped at technical resistance and sold.

165,000 Jobs vs a Hiking Fed: Why the Dollar Won Friday

The Bureau of Labor Statistics release for October beat forecasts on almost every measure. Payrolls rose 165,000, against a consensus of 59,000 to 65,000 and above the highest estimate of 131,000. The two prior months were revised up by a combined 84,000. August moved to 186,000 and September to 60,000. Unemployment dropped to 4.1%. Average hourly earnings rose 0.4% for the month and 3.1% from a year earlier, against forecasts of 0.3% and 2.9%. The average workweek held at 34.4 hours.

The timing hurt the euro. A month earlier, September’s 29,000 print had pushed the dollar down and lifted EUR/USD to 1.1282 on October 2, as the market questioned whether the Fed would hike again. October’s number reverses that. Revising September up to 60,000 shows the weakness was a one-month soft patch and not the start of a slowdown. That takes away the main argument euro bulls had relied on: that the US economy was close to stalling.

The Fed is responding to strength, not weakness. Chair Kevin Warsh raised rates 25 basis points to 3.75% to 4.00% on September 16, the first increase since 2023. The central bank held at its late-October meeting and kept a December move open. Two Fed officials argued on Thursday for small, steady increases to get inflation back to target. After Friday’s report, futures price a 74.8% chance of a December 9 hike, up from 72.8% before the release.

The rate reaction drove the currency move. The 2-year Treasury yield, the maturity that matters most for currency differentials, rose as much as 7 basis points to 4.54%. The 10-year yield rose 6 basis points to 4.90%. When US short-term yields rise and euro-area rates don’t move, the yield advantage of holding dollars over euros widens, and EUR/USD falls. Friday’s 0.77% drop matches that relationship closely.

US calendar risk is concentrated in the next five weeks. October CPI comes next week. The November jobs report comes December 4. The Fed decides December 9. A hot CPI reading after Friday’s payroll beat would push December hike odds above 85% and could take EUR/USD through 1.1100. A soft CPI reading would be the main thing that could send the pair back toward the 1.1300 resistance before the ECB’s December 17 meeting.

ECB at 2.50%: A Pause With December Already Signaled

The ECB is not dovish. It has raised rates twice this year, in June and September, taking the deposit facility rate to 2.50%, the main refinancing rate to 2.65% and the marginal lending rate to 2.90%. The September 10 move, effective September 16, added 25 basis points. Before the Iran war began on February 28, investors expected no ECB hikes in 2026 and saw some chance of easing. The energy shock reversed that.

On October 29 the Governing Council held all three rates, but the details were hawkish. Lagarde said the council discussed a hike before agreeing unanimously to wait. She said the ECB was not yet seeing additional second-round effects beyond what was already in the September projections, and that underlying inflation and wage growth were broadly stable. She also said the ECB’s direction of travel was clear and that the data between now and December would decide the next hike.

Most forecasters now expect one more increase to 2.75% at the December 17 meeting, and many expect that to be the last of the cycle. Some see a further move to 3.00% in 2027 if energy prices keep pushing up inflation forecasts. The bar for a December hike looks low because higher energy prices will probably force another upward revision to the ECB’s inflation projections. Earlier in October, swaps priced 75 basis points of tightening by the end of 2027.

ECB staff have also flagged something that matters for the euro. Internal estimates show the rise in bond yields cutting euro-area growth by a cumulative 100 basis points and inflation by 90 basis points across 2027 and 2028, compared with the September baseline. A central bank that sees its own tightening plus market-driven tightening hurting growth that much is likely to stop sooner. That limits how far the market can push ECB pricing, and it limits how much support the euro gets from a December hike.

For EUR/USD, the ECB’s hawkish stance acts as a floor, not a source of upside. Hawkish comments from ECB officials have kept the euro from falling faster, and that is part of why EUR/USD has held above 1.1100 through October even as US yields rose. But a December hike is already mostly priced. It can’t do for the euro what Friday’s payroll surprise did for the dollar, because it would confirm what markets already expect rather than change it.

Eurozone Inflation at 4.0%: Energy Is Doing the Damage

The eurozone inflation picture explains why the ECB is hiking and why that doesn’t help the euro much. Eurostat’s flash estimate published November 4 put October inflation at 4.0%, up from 3.8% in September. That is the highest reading in more than three years and the eighth straight month above the ECB’s 2% target. In August inflation was 3.2%. In February it was 1.9%, before the energy shock reached consumer prices.

Almost all of the increase comes from energy. Energy prices rose 20.8% from a year earlier in October, up from 18.9% in September. Core inflation, which excludes energy, food, alcohol and tobacco, held at 2.5% for a second month. Services inflation edged up to 3.3% from 3.2%. Food, alcohol and tobacco rose to 1.6% from 1.3%. Non-energy industrial goods rose to 1.2% from 1.1%. Outside energy, prices are rising at a pace close to the ECB’s comfort zone.

That split decides how the ECB’s tightening affects the currency. When inflation comes from domestic demand, rising wages and services, a central bank hike tends to lift the currency because it shows confidence in growth. When inflation comes from imported energy, a hike works more like a tax on an economy that is already being squeezed. Eurozone producer prices rose 11.1% in September from a year earlier, which shows how much pressure is building in the supply chain and squeezing corporate margins.

Inflation differs widely across the bloc. German inflation fell to 2.8% in October from 3.3% in September, while Spain’s eased to 4.9% from 5.0%. Lithuania had the highest rate among the 21 euro members at 6.1%, followed by Bulgaria at 6.0%. Malta had the lowest at 2.3%. That spread makes a single policy rate harder to set and adds to the uncertainty about where the ECB goes after December.

Euro-area inflation swaps and breakevens fell to two-month lows after the October flash. Markets took the stable 2.5% core reading as evidence that the energy shock is not becoming entrenched. That lowers the case for an extended ECB hiking cycle. For EUR/USD, it means the euro does not get the rate support that a 4.0% headline print might suggest at first glance.

Growth: A 0.4% Q3 GDP Beat, but France and Italy Stalled

Eurozone growth surprised to the upside in the third quarter. The flash estimate showed GDP up 0.4% from the second quarter, double the 0.2% consensus, and up 1.3% from a year earlier, an acceleration from 1.2% in Q2. The wider EU grew 0.5% on the quarter and 1.5% on the year. That is better than the stagnation many forecasters expected after the energy shock.

The breakdown is less encouraging. Q3 growth slowed from 0.6% in the second quarter. Italy grew 0.0% on the quarter, after 0.2% in Q2. France contracted 0.1%. Most of the bloc’s growth came from smaller economies and from Spain, which again led the large economies. Ireland posted a 5.5% gain, a figure Eurostat itself treats as experimental. Take out Ireland’s volatile multinational accounting and the underlying growth rate is softer than the headline.

Consumer spending is the weak spot. Eurozone retail sales volumes fell 0.6% from the prior month in July, the steepest monthly drop in more than a year. They rose only 0.1% in August. The September figures, released Friday, added to the pressure on the euro. Annual retail growth slowed to 0.4% in July, its weakest in two years, before recovering to 0.8% in August. Households with energy bills up more than 20% a year are cutting spending elsewhere.

Industry offers a mixed picture. German factory orders have been volatile all year. Orders jumped 3.1% in June but have swung widely when large contracts are excluded. German industry was expected to become a drag on growth in the third quarter after supporting the economy in the first half. The structural problems are still there: high energy costs, a changing relationship with China, and pressure on export demand.

The euro’s growth problem is relative. A 0.4% quarterly expansion in Europe looks respectable on its own. Next to a US economy adding 165,000 jobs a month with unemployment at 4.1%, it doesn’t hold up. The revised Q3 GDP estimate on November 13 is the next test. A downward revision, especially if France’s contraction deepens, would add more pressure to EUR/USD below 1.1100.

Policy Gap Math: 3.75%-4.00% vs 2.50%

The basic arithmetic of EUR/USD is the gap between the two policy rates. The Fed’s target range is 3.75% to 4.00%. The ECB’s deposit rate is 2.50%. That puts the policy gap between 125 and 150 basis points in favor of the dollar. A currency investor who holds dollars over euros earns that difference every year, and that carry advantage is one of the main reasons EUR/USD has stayed below its 200-day moving average since mid-September.

The December decisions are likely to leave the gap where it is. If the Fed hikes on December 9 to 4.00% to 4.25%, and the ECB hikes on December 17 to 2.75%, the policy spread doesn’t change. That is why the market is focused less on whether each central bank hikes in December and more on what comes after. Which bank stops first, and which one keeps going into 2027?

The answers point in the dollar’s favor. The Fed is tightening into a labor market that keeps surprising on the upside, with wages growing faster than forecasts. Nothing in Friday’s data suggests the Fed needs to stop soon. ECB staff are already estimating growth losses of 100 basis points from higher yields, and many in the market expect December to be the final hike before a long pause. If the Fed keeps going and the ECB stops, the policy gap widens in 2027, which would mean a lower EUR/USD.

Short-term yields show this in real time. The 2-year Treasury yield jumped to 4.54% on Friday. Euro-area short-term rates have been more stable, anchored by the expectation that December is the ECB’s last hike. The gap between US and German 2-year yields is the single best predictor of EUR/USD direction over weeks and months, and Friday’s move widened it in the dollar’s favor.

There is a risk to this setup. Markets could be overpricing the Fed. If October CPI comes in soft, or if the AI-led equity sell-off spreads into a broader financial-conditions shock that forces the Fed to pause, US short-term yields would fall faster than euro rates. That is the main route for EUR/USD to rally back toward 1.1300 and 1.1415. For now, the jobs data points the other way.

France’s Bond Problem and the Euro Risk Premium

France has brought sovereign risk back into the euro. In early October, the French 10-year OAT yield briefly rose above 5%, its highest level since July 2002, as worries about the country’s budget and political direction grew. The spread between French and German 10-year yields widened to 159 basis points, the widest since November 2011, during the euro debt crisis. France’s fiscal watchdog said the government’s budget assumptions were optimistic.

The spread narrowed to 135 basis points in the week of October 9 as investors asked whether the move had gone too far too fast. By the ECB’s October 29 meeting, the French-German spread was back above 150 basis points. Lagarde played down the bond tensions at her press conference. But the market treated France’s risk premium as a country-specific problem, not just a side effect of higher global yields.

The political calendar keeps that risk in place. France’s next presidential election is in 2027, and polls show far-right candidate Marine Le Pen favored to win. Investors are already pricing political risk into French debt. A wider OAT-Bund spread raises French corporate borrowing costs, tightens financial conditions across the euro area, and brings back fragmentation risk, the danger that bond markets for different members diverge enough to threaten the single currency.

For EUR/USD, French bond stress adds a risk premium that the policy-rate gap doesn’t capture. When investors worry about a eurozone member’s debt, they demand more compensation for holding euro assets. That shows up as weaker capital flows into the euro and weaker currency demand. The euro’s failure to rally above 1.1300 even as US yields fell on Wednesday partly reflects that premium.

The ECB’s tools limit the worst outcomes. The Transmission Protection Instrument lets the ECB buy a member’s bonds if spreads widen in ways not justified by fundamentals. But the ECB’s own staff estimate that higher yields are already cutting growth sharply, and Lagarde’s early departure adds uncertainty about who will decide whether to use that tool. A move in the French spread back toward 160 basis points would add fresh pressure on EUR/USD toward 1.1000.

Lagarde’s Exit and the Succession Overhang

Christine Lagarde’s early departure adds another layer of uncertainty. On October 29, the day of the rate hold, Lagarde said she would step down on February 7, 2027, well before her term was due to end in October 2027. She said she was leaving because she could no longer remain neutral. The timing gives current EU leaders room to pick a successor before France’s presidential election.

Lagarde will chair two more ECB meetings, on December 17 and in February. The first is expected to bring the hike the council debated in October. Policy after that is much less clear, because nobody yet knows who will take over. European Council President Antonio Costa said the succession process would start immediately. The appointment will be made while President Emmanuel Macron is still in office, and German Chancellor Friedrich Merz is also expected to have a major say.

Currency markets don’t like leadership uncertainty at a central bank in the middle of a tightening cycle. Candidates for the ECB presidency could range from a hawkish northern European central banker to a more growth-focused candidate from the south. Each would bring a different reaction function, especially on whether to keep hiking into an energy shock, and on how forcefully to use bond-buying tools if French spreads widen again.

The succession also lands while the ECB’s own projections show tightening already hurting growth. A new president inheriting a deposit rate of 2.75%, inflation at 4.0%, core at 2.5% and staff estimates of a 100-basis-point growth hit would face strong pressure to pause. That reinforces the market view that December is the last hike, and it caps how much rate support the euro can expect in 2027.

The near-term effect on EUR/USD is modest but negative. Investors tend to demand a small risk premium on a currency whose central bank leadership is changing. The bigger effect would come if the chosen successor is seen as dovish, which would bring forward expectations for an end to the cycle and widen the policy gap with the Fed. Announcements about the successor in the coming weeks are an event risk for the pair.

Oil, Iran and the Terms-of-Trade Hit

Energy is the main structural driver against the euro in 2026. The eurozone is a large net importer of energy. When oil and gas prices rise, Europe sends more money abroad for fuel, its trade balance worsens, and demand for euros falls. The US is a net energy exporter, so higher energy prices partly help its trade position. That terms-of-trade gap is one of the most important factors in EUR/USD this year.

The Iran war began on February 28. By early March, Iran had effectively closed the Strait of Hormuz, which handles 20% of global oil and LNG supply. Brent rose above $120 a barrel. Oil prices rose more than 60% in March, the largest monthly gain on record. That shock pushed European inflation from 1.9% in February to 4.0% in October, and forced the ECB to reverse a planned easing cycle into two hikes.

The war has moved through stages. April brought a temporary ceasefire and a brief reopening of Hormuz. July brought tanker attacks and escalation. A US naval blockade of Iranian ports and stop-and-start negotiations followed. Brent climbed back toward $100 on Friday morning before easing to $98.18, while WTI traded at $90.64. Oil is still on track for a weekly decline as markets expect de-escalation after the midterm results.

For EUR/USD, a durable US-Iran deal would be the most bullish development possible. A reopening of Hormuz that pushed Brent toward $80 would cut European energy inflation sharply, improve the euro area’s trade balance and ease pressure on household spending. It would also reduce the need for further ECB hikes, which hurts the euro on rates, but the terms-of-trade gain would more than make up for that. Euro rallies this year have coincided with oil declines, as on Wednesday.

Renewed escalation would push the other way. A return of Brent to $110 or higher would lift euro-area inflation forecasts again, deepen the hit to consumer spending, and widen the gap between US and European growth. That would push EUR/USD below the 1.1100 support toward 1.1000. Headlines about the conflict are the main risk outside the scheduled economic calendar.

Risk Sentiment: The Equity Rout and the Safe-Haven Dollar

Thursday’s equity crash showed the dollar’s safe-haven role is intact. As the Nasdaq fell 5.52% into correction territory and the S&P 500 dropped 4.36%, its worst day since April 2025, investors bought dollars even as Treasury yields fell. The Dollar Index rose 0.10% to 101.59 on Thursday, a modest gain on a day when lower US yields would normally have weakened the currency. EUR/USD fell back from just under 1.1300 to 1.1200.

The sell-off spread overseas on Friday. Japan’s Nikkei fell 6.7% and entered a bear market. Korea’s KOSPI dropped 8.7% at one point and set off a circuit breaker. European shares opened lower. A global risk-off move like that tends to help the dollar against the euro, because international investors bring money home to the US and because the dollar is the main funding currency for global trades that get unwound.

The cause of the sell-off matters for the euro’s outlook. Thursday’s crash was driven by fears that Democratic victories would restrict AI data-center construction in Texas, Ohio, Michigan and Georgia. That is mainly a US-specific shock hitting US tech stocks. In theory, a US-centered sell-off could weaken the dollar if investors decide American growth assets are less attractive. In practice, the first reaction was a dollar bid, because liquidity and funding needs come first.

There is a scenario where the equity sell-off becomes good for the euro. If the AI repricing turns into a broader US growth scare, with weaker spending on technology investment, lower business confidence and a Fed forced to reconsider hiking, US yields would fall and the dollar would weaken. A move like that would let EUR/USD rally toward 1.1300 and 1.1415 even with Europe’s own problems. Friday’s payroll report shows the US economy isn’t there yet.

Volatility is still elevated. The VIX posted its biggest one-day jump in 19 months on Thursday and was at 26.07 early Friday. FX implied volatility usually rises with equity volatility, which can widen EUR/USD’s daily ranges. The pair’s typical move in the hour after a US jobs report has been 0.11% over the last eight releases. Friday’s 0.77% decline was several times that, which shows how much the combination of a data surprise and risk-off conditions amplified the move.

Positioning and the Technical Map

Speculative positioning is bearish on the euro. In the latest reporting week, professional traders opened 4,225 new long positions and 13,595 new short positions. Speculators now hold 231,000 long contracts and 374,000 short contracts, a net short of 143,000. Heavy short positioning cuts both ways. It confirms that the trend favors the dollar, but it also means a sudden positive surprise for the euro could trigger a sharp short-covering rally.

The technical levels are clear. On the downside, the immediate support is the October 29 low just above 1.1100. The pair is 30 pips above it. Below that, 1.1050 is the next level, and then the 1.1000 handle, a major psychological level and the downside target several forecasters set ahead of the payroll report if the data came in strong. A daily close below 1.1100 would confirm a new low for the move and open the way to 1.1000.

On the upside, the first resistance is the 1.1195 to 1.1200 area. The pair broke below the middle Bollinger Band at 1.1195 on Friday. Above that, the upper Bollinger Band near 1.1260 is the next barrier, followed by the 1.1300 handle and the 50-day EMA just above it, where Wednesday’s rally failed. A daily close above the 50-day EMA would be the first sign that the bearish structure is breaking.

Higher levels are farther away. The 100-day simple moving average sits near 1.1415. The 200-day EMA, just above 1.1450, is the dividing line between the broader downtrend and a possible recovery. EUR/USD has stayed below the 200-day EMA since mid-September. Getting back above it would need a major shift in fundamentals, such as a US growth scare or a decisive end to the Iran war.

Momentum indicators back the bearish lean. Daily momentum turned down from overbought after Wednesday’s test of 1.1300, and the pair has now taken back the whole week’s rally. The trading pattern since September has been lower highs and a range bounded by 1.1100 below and 1.1300 above. A break of either side would set the direction for the rest of the year, and the macro backdrop favors a break lower.

Scenario Map: 1.1000 Downside, 1.1050–1.1300 Base, 1.1415 Upside

Our forecast covers the period through the Fed’s December 9 decision and the ECB’s December 17 meeting, with three scenarios.

The base case, at 55% probability, is a range between 1.1050 and 1.1300 with a bearish lean. In this scenario, October US CPI comes in close to expectations, December Fed hike odds stay between 70% and 80%, the ECB confirms a December hike to 2.75%, and oil stays between $90 and $100. EUR/USD tests the 1.1100 support, may briefly break it toward 1.1050, and then holds as ECB hawkishness and heavy short positioning limit the decline. The end-of-November target is 1.1100, slightly below the current price.

The bearish case, at 30% probability, is a break to 1.1000. A hot US CPI print following Friday’s payroll beat would push December hike odds above 85% and widen the 2-year yield gap. French bond spreads would widen back toward 160 basis points, and the revised Q3 GDP estimate on November 13 would show a deeper contraction in France. A daily close below 1.1100 would trigger the move, with 1.1050 and then 1.1000 as targets. The 1.1000 target is 1.2% below the current price.

The bullish case, at 15% probability, is a recovery to 1.1415. October US CPI would need to come in soft, December Fed hike odds would need to fall below 50%, and a durable US-Iran deal would need to push Brent toward $80. The AI-driven US equity sell-off would also need to turn into a broader growth scare that weakens the dollar. A daily close above the 50-day EMA at 1.1300 would confirm the move, and heavy speculative short positions would speed up a short-covering rally toward the 100-day SMA at 1.1415, 2.5% above the current price.

The risk-reward from 1.1132 tilts to the downside in the short term. The bearish target of 1.1000 is 1.2% lower. The bullish target of 1.1415 is 2.5% higher but carries the lowest probability. The base-case target of 1.1100 is just under the current price.

The signals that decide which scenario plays out are, in order: next week’s US CPI, the November 13 revised eurozone Q3 GDP estimate, the French-German 10-year spread, oil prices and US-Iran headlines, and any announcement about Lagarde’s successor. Two or more turning in the euro’s favor would point to the bullish case. Two or more turning against it would make a break below 1.1100 the most likely outcome.

Verdict: Bearish Bias Below 1.1300, Sell Rallies Toward 1.1200, Target 1.1050 then 1.1000

EUR/USD at 1.1132 has erased the week’s gains and is sitting just above the 1.1100 October 29 low. The October US jobs report pushed it there: 165,000 payrolls against a 65,000 forecast, 4.1% unemployment, 3.1% wage growth, December Fed hike odds at 74.8%, a 10-year Treasury yield of 4.90% and a 2-year yield of 4.54%. The midterm-driven euro rally to just under 1.1300 stopped at the 50-day EMA and reversed within 48 hours, which shows how quickly sellers step in at resistance.

The euro’s case rests on an ECB that is still tightening, with a deposit rate of 2.50% and a December hike to 2.75% widely expected, and on a Q3 GDP print of 0.4% that beat the 0.2% consensus. Those factors limit the decline but don’t drive a rally. Eurozone inflation of 4.0% is driven by 20.8% energy inflation while core sits at 2.5%, so ECB hikes amount to a tax on an energy-squeezed economy rather than a sign of strength. France’s 0.1% contraction, Italy’s flat quarter, French 10-year yields that went above 5%, an OAT-Bund spread above 150 basis points, and Lagarde’s February 7 exit all add a risk premium on top of a 125- to 150-basis-point policy gap that favors the dollar.

Our call is a bearish bias below 1.1300. Selling rallies into the 1.1195 to 1.1260 area is the preferred approach, with a near-term target of 1.1050 and an extended target of 1.1000, 1.2% below the current price. A daily close below the 1.1100 October low would confirm the move. A daily close above the 50-day EMA at 1.1300 would invalidate the bearish bias and open 1.1415. Next week’s US CPI release is the next decision point, and until it comes, the pair’s direction depends more on US data than on the ECB.

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