In a surprising turn of events, the EUR/USD currency pair plummeted as the US Dollar surged against a backdrop of disappointing Eurozone economic data. The Eurozone’s Composite Purchasing Managers' Index (PMI) revealed an unexpected contraction, marking a considerable shift in market sentiment.

The latest figures showed the Eurozone Services PMI plunged to 49.2, indicating a slowdown in business activity for the first time since January, a stark contrast to forecasts predicting stability around the neutral 50.0 mark. This key indicator dropped from an earlier reading of 51.6, stirring concerns about the region’s economic vitality.

Compounding the situation, the Manufacturing PMI showed similar distress, dipping to 45.2, which underscores a deepening contraction in this sector. Analysts had anticipated a minor decrease to 46.0, but the fallout from the PMI reports points to a worrying trend for the Eurozone economy.

As a result of this economic uncertainty, traders are reassessing their expectations for the European Central Bank (ECB). The likelihood of a 50 basis point rate cut is now seen as probable, with estimates skyrocketing from less than 20% prior to the PMI release. The move reflects stakeholders' apprehension about the potential fallout from a global trade war, exacerbated by recent comments from ECB officials expressing concern over mounting economic risks.

In a recent discussion in Frankfurt, ECB policymakers voiced alarm regarding the anticipated impacts of US President-elect Donald Trump’s proposed tariffs. ECB chief economist Philip Lane warned that escalating trade tensions could lead to significant global economic setbacks. Adding to the gloom, Christodoulos Patsalides, Governor of the Central Bank of Cyprus, hinted at possible stagflation in the event that trade restrictions come into effect.

The market sentiment appears to favor the US Dollar, which achieved a fresh two-year high, driven by reduced expectations for aggressive rate cuts from the Federal Reserve. The speculation centers around an uptick in US inflation and economic growth spurred by Trump’s fiscal policies, which include substantial tax cuts and an overall approach favoring domestic investments.

Market forecasts suggest that the probability of the Federal Reserve opting for a 25 basis point rate cut in December has decreased significantly, now standing around 56% compared to 70% in previous weeks.

Looking ahead, all eyes will be on the upcoming flash S&P Global PMI data set for release from the United States, which analysts project will reflect a more favorable business environment in both manufacturing and service sectors.

From a technical perspective, the EUR/USD pair has dipped below the crucial psychological support level of 1.0500, hitting a low of 1.0330. If this downward trend continues, traders might see further challenges, especially if the support level of 1.0300 fails to hold. Euro bulls will need to reclaim levels above 1.0500 and push toward the November highs around 1.0600 to alter this bearish sentiment.

In conclusion, with the Eurozone grappling with faltering economic indicators and the looming possibility of ECB intervention, the next few weeks will be critical for both the Euro and the US Dollar. Keep an eye on the unfolding situation as these dynamics could lead to significant shifts in global currency markets.