EUR/USD extends gains ahead of US employment, services data

EUR/USD extends gains against the US Dollar and trades at fresh one-month highs near 1.1670 at the time of writing. The stronger-than-expected Eurozone HCOB Services Purchasing Manager' Index (PMI) figures have provided additional support to the pair, and the focus now shifts to the US ADP Employment report and a slew of services activity indicators.

November's final Eurozone HCOB Services Purchasing Managers Index has been revised up to 53.6 from the previously estimated 53.1 reading. This marks the fourth consecutive improvement of the sector's activity and the best performance since May 2023. Likewise, service activity data from France has been revised to 51.4 from 50.8, and German HCOB Services PMI to 53.1 from the previously estimated 52.7 reading.

These figures endorse the European Central Bank's hawkish stance, which is likely to be reiterated by ECB President Christine Lagarde's speech later on Wednesday and underscores the monetary divergence with the US Federal Reserve (Fed), which is widely expected to cut rates by 25 basis points next week and probably a few more times in 2026.

In the US, the ADP Employment Change, due later in the day, is expected to add to evidence of a stalled labour market, increasing pressure on the Fed to adopt a less restrictive monetary policy. At a later time, the ISM Services PMI is expected to show a moderate slowdown of the sector's activity.

Daily Digest Market Movers: The Euro appreciates further as risk appetite returns

• An improved market sentiment is providing some support to the Euro on Wednesday. Asian stock markets have been mixed, but European and Wall Street stock futures are positive. Precious metals have pulled back from highs, and the US Dollar remains on the defensive.
• Investors are pricing an 85% chance that the Fed will cut interest rates by 25 basis points next week, and a high probability that the White House adviser Kevin Hassett will replace Chairman Jerome Powell and ease monetary policy further next year. The monetary policy divergence between the Fed and the ECB, which is at the end of its easing cycle, has boosted the EUR/USD by more than 1% in an eight-day rally.
• Later in the day, ECB President Cristine Lagarde will speak at the European Parliament, where she will likely reiterate that the current monetary policy is appropriate and that interest rates will remain at current levels for some time.
• In the US, November's ADP Employment Change report is expected to show a net gain of 5,000 jobs, below the 42,000 jobs seen in October. These figures are likely to increase concerns about the labour market and feed investors' hopes of immediate Fed interest rate cuts.
• The US ISM Services PMI is expected to show that activity slowed down to 52.1 in November, from 52.4 in October. The market will closely analyze the new orders, employment, and prices sub-indices for a better assessment of the sector's health.

Technical Analysis: EUR/USD might find resistance at 1.1670

EUR/USD has finally broken and confirmed above the top of the descending channel, and is trending higher. The Moving Average Convergence Divergence (MACD) indicator in the 4-hour chart has taken off from the zero level, suggesting a growing bullish momentum, but the Relative Strength Index (RSI) has entered overbought levels, which shows that the bullish trend seems to be stretched.

Bulls are now at the 1.1670 area, where the pair was on October 28 and 29. Further up, the next target is the October 17 high, right below 1.1730. On the downside, the reverse trendline at 1.1605 and Tuesday's low at 1.1590 are likely to challenge bears ahead of the 1.1550 area (near November 26 and 28 lows), and the 1.1500 psychological level.