EUR/USD Forecast: Bullish Momentum Amid ECB-Fed Divergence, Weaker ADP

• The EUR/USD forecast remains bullish as the dollar weakened further following the release of dismal ADP and Services PMI data.
• The ECB’s neutral monetary policy diverges from easing Fed support, with EUR/USD poised for upside.
• Markets await the US Jobless Claims and PCE inflation report data ahead.

The EUR/USD forecast edges higher as the US dollar remains consistently weaker under the weight of dovish Fed expectations and softening US data. The Dollar Index has slipped below the 99.00 mark, and further pressure suggests odds of a deep downside to the 97.00 region.

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The weakening trend in the greenback supports the EUR/USD holding firm around 1.1650 after eight consecutive bullish sessions. The price is now at the strongest level since mid-October. Analysts anticipate that persistent upside pressure could push the prices to the 1.17-1.18 range in the near term.

The US dollar backdrop remains fragile as the recent ADP Employment Change revealed a sharp reduction of 32,000 jobs, compared with expectations of a modest gain. The data shows another sign of a cooling labor market, significantly strengthening the odds of a 25 bps rate cut in next week’s meeting. The CME FedWatch Tool indicates a probability of a rate reduction of nearly 90%, which reduces the yield support for the greenback.

On the other hand, the ECB remains firm in a neutral stance, with markets assessing a 94% probability that the ECB will leave interest rates unchanged at its December 16 meeting. ECB President Lagarde reiterated that inflation is expected to stay near the 2% target, stabilizing the “hold” narrative. The euro appears steadier and more attractive to investors as the Fed-ECB divergence becomes more apparent.

EUR/USD Key Events Ahead:

Traders are now focusing on today’s US Jobless Claims data, Challenger layoffs, and Friday’s PCE inflation report. These figures will be crucial in shaping next week’s pivotal Fed decision.

EUR/USD Technical Forecast: Bullish Path of Least Resistance

The EUR/USD 4-hour chart indicates a lack of momentum, even after the pair breaks the resistance level at 1.1650. The price is now retesting the resistance that has turned into support. However, the RSI remains near the overbought zone, suggesting further consolidation.

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The 20-period MA near 1.1635 remains a solid support for the pair. A sustained upside could aim for a test of 1.1725, October’s swing high. On the other hand, a move below 1.1635 could push the price to 1.1600, ahead of 1.1550.

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