Federal Reserve interest rate cut expectations change, is a strong rebound of the US dollar imminent? [Forex Weekly Report]

Weekly Market Overview The main driver of this week’s forex movements remains the shift in Federal Reserve policy expectations. Last week (11/10-11/14), the US dollar performed weakly, with the dollar index falling 0.28%, but this downward trend may soon reverse.

EUR/USD rose 0.46%, AUD gained 0.68%, while JPY fell 0.73% and GBP edged up 0.08%, showing divergence among non-USD currencies. This divergence reflects the market’s reassessment of different economic outlooks.

Fed Policy Shift Sparks Stronger USD Expectations

A key change last week captured all market attention: Fed officials repeatedly signaled a “hawkish” stance, completely altering expectations for a rate cut in December.

The shift in policy expectations was quite dramatic. Previously, markets widely anticipated a rate cut, but the current situation is very different—CME FedWatch shows the probability of a 25 bps rate cut in December has fallen to 45.8%, while the chance of holding rates steady has risen to 54.2%. This reversal is a bullish signal for the USD.

At the same time, the US government ended a 43-day shutdown (on November 12, Trump signed a temporary funding bill), clearing obstacles to economic data releases. As economic data re-enters market focus, the USD’s strong stance is expected to be reinforced.

Non-Farm Payrolls as a Key Indicator, Determining USD Direction

In the coming week, a series of major economic data releases will determine the USD outlook:

November 20: September Non-Farm Payrolls report, a direct window to assess whether the US labor market is weakening further. If employment data unexpectedly weaken, it will reinforce expectations of a December rate cut, putting pressure on the USD; conversely, stronger data will undermine rate cut expectations and support USD strength.

November 26: Q3 GDP revision and October PCE Price Index will be released simultaneously. These data points will influence market judgments on the Fed’s overall policy direction.

The movement of EUR/USD will directly reflect how these data impact rate cut expectations.

Technical Outlook: EUR/USD Breakout Imminent

From a technical perspective, EUR/USD has broken above the 21-day moving average but has yet to clear the 100-day moving average resistance at 1.166. Once this level is broken, a larger upward move could begin; otherwise, downside pressure remains, with support at the previous low of 1.146.

This week, US September non-farm payrolls, October FOMC minutes, and November PMI data for Europe and the US will be key catalysts for technical direction.

Yen Depreciation Trend Persists, USD/JPY Challenges New Highs

Last week, USD/JPY rose 0.73%, with the yen remaining weak. The drivers are twofold:

Policy: Newly appointed Prime Minister Sanae Takaichi hinted that the Bank of Japan will slow its rate hikes, while the Japanese government plans to introduce an economic stimulus package of about 17 trillion yen. Goldman Sachs warns that an unexpectedly large stimulus could raise concerns about Japan’s fiscal discipline, further weakening the yen.

Forex Intervention Attitude: Notably, Japan’s official stance on yen depreciation has not yet tightened. MUFG Morgan Stanley Securities assesses that Japanese authorities might tolerate USD/JPY rising to around 1:161 to avoid excessive depletion of foreign exchange reserves.

Technical Outlook: USD/JPY Reaches 155 Challenge

On the technical side, USD/JPY remains above multiple moving averages, with RSI indicating strong bullish momentum. Under the current strong dollar environment, USD/JPY is expected to test the 155 level again; a successful break could open further upside space.

Key support is at the 21-day moving average of 153.38.

This Week’s Focus

Market attention will be on: Japan’s economic stimulus scale, US non-farm payrolls, US GDP and inflation data, and Eurozone and US PMI figures. Any surprise results could accelerate USD strength or reshape short-term currency pair trends.