EUR/USD Reverses at Supply Level Amid German PMI Weakness

23. Sept.

Germany’s Manufacturing PMI continued its decline, dropping to 40.3 in September, falling short of the forecast of 42.4. This latest figure signals ongoing weakness in Europe’s largest economy, as the manufacturing sector struggles with reduced demand and broader economic challenges. The PMI contraction adds further pressure to the already fragile outlook for the Eurozone, and it has contributed to the recent bearish moves in the EUR/USD pair.

As anticipated in our recent analysis, the EUR/USD reacted sharply to the supply level around 1.11500, starting a reversal following the weak data. The currency pair’s behavior confirms the importance of this key resistance area, which has once again acted as a barrier to further gains. The reversal gained momentum as the Services PMI for the German economy also disappointed, falling to 50.6 in September, below the expected 51.0. The combined weakness in both manufacturing and services sectors signals a broader slowdown in the German economy, weighing on the Euro.

Adding to the bearish outlook for the EUR/USD, the Commitment of Traders (COT) report shows a clear divergence in sentiment between retail traders and institutional investors. Retail traders remain largely long on the EUR/USD, reflecting optimism that the Euro will recover. However, "Smart Money" — large institutional traders — continue to hold a bearish position, suggesting that they expect further downside for the pair.

This contrast in positioning underscores the potential for more weakness in the Euro, particularly if the economic data from Germany and the Eurozone continues to disappoint. As smart money maintains a bearish stance and the EUR/USD begins its reversal, traders should remain cautious of potential short-term rallies and focus on the broader downtrend that seems to be forming.

Looking ahead, traders will keep a close eye on future economic data releases and central bank decisions, as these will likely shape the next leg of the EUR/USD’s movement. For now, the pair appears set to continue its downward trend, with the 1.11500 supply level serving as a strong point of resistance.

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