The EUR/USD exchange rate continued its rebound during Monday's European trading session, hovering near 1.1745, just shy of the multi-month high of 1.1762. Market focus is gradually shifting from expectations of U.S. monetary policy easing to the potential policy adjustments by the European Central Bank (ECB).
Recent data from the Eurozone has injected optimism into the markets. Eurostat reported that industrial production in the Eurozone rose 0.8% month-on-month in November, a significant improvement from October’s 0.2% and surpassing market expectations of 0.1%. Year-on-year, industrial output growth accelerated to 2% from 1.2% in October, signaling a gradual recovery in the region’s manufacturing sector. This data not only dispels earlier market pessimism about Europe’s economic outlook but also supports the ECB’s likely hawkish stance at its upcoming monetary policy meeting on Thursday.
Notably, recent remarks from ECB officials have signaled a potential policy shift. Executive Board member Isabel Schnabel confirmed a key market assumption—the ECB’s rate-cutting cycle may have ended, with the next move more likely to be a hike rather than a cut. While the Governing Council has yet to formally discuss rate hikes, indicators suggest Thursday’s meeting will likely express optimism about Eurozone growth. ECB President Christine Lagarde’s comments last week hinted at an upward revision to growth forecasts, reinforcing expectations of a hawkish tilt.
In contrast, monetary policy expectations across the Atlantic are moving in the opposite direction. Markets now anticipate at least one Fed rate cut in 2026, while discussions about leadership changes at the Fed continue to weigh on the dollar. Reports suggest former Fed Governor Kevin Warsh is a strong candidate to replace Chair Jerome Powell, with White House economist Kevin Hassett also under consideration. This uncertainty adds pressure to the dollar’s outlook. The narrowing spread between U.S. and Eurozone short-term rates further supports the euro’s medium-term strength, as Eurozone assets gain appeal as alternatives to dollar-denominated investments.
**Market Performance** The EUR/USD has risen nearly 2% over the past three weeks, with Monday’s trading showing consolidation near recent highs. Technically, the pair finds solid support at 1.1700, while resistance looms at the multi-month peak of 1.1762. The MACD indicator suggests bullish momentum remains intact, with both the DIFF and DEA lines above zero and the histogram positive. However, the RSI near 69, though not yet overbought, hints at potential near-term consolidation before further gains.
Traders are cautious ahead of a packed macro calendar. Delayed U.S. nonfarm payrolls data for October and November will be released Tuesday, followed by U.S. CPI figures and the ECB policy decision on Thursday. Investors are reluctant to take directional bets before these key events. Meanwhile, the New York Fed’s manufacturing index is expected to decline to 10.6 in December from 18.7, reflecting concerns about a potential slowdown in U.S. factory activity.
The euro’s strength stems from multiple factors: 1. **Diverging Monetary Policies**: While the ECB signals an end to rate cuts and hints at hikes, the Fed faces growing pressure to ease, driving yield differentials in favor of the euro. 2. **Improving Eurozone Data**: Strong industrial production figures underscore the region’s resilience, supporting the ECB’s hawkish stance. 3. **Fed Leadership Uncertainty**: Speculation about Powell’s successor and potential shifts in U.S. policy independence are weighing on the dollar.
**Outlook** This week’s events will shape the EUR/USD’s near-term trajectory. Weak U.S. jobs data could reinforce Fed easing expectations, pressuring the dollar. The ECB’s meeting is pivotal—any upward revision to growth forecasts or hawkish rhetoric from Lagarde may fuel further euro gains. Comments from Fed officials, including John Williams, will also be scrutinized for clues on U.S. policy direction.
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