The Euro (EUR) has extended its decline against the US Dollar (USD), reaching two-and-a-half-month lows and dropping about 0.5% so far this week, with EUR/USD trading at session lows of 1.1414 on Wednesday [1]. This weakness persists despite robust Eurozone Purchasing Managers' Index (PMI) figures, as political uncertainty in Germany and rising French debt weigh heavily on investor sentiment [1][2]. The Eurozone's preliminary business activity data for September exceeded expectations, with the HCOB Services PMI jumping to 53, its highest level in 10 months, well above the 51.7 market forecast and last month's 51.6 reading. The HCOB Manufacturing PMI remained steady at 52.7, matching market consensus [1]. The Eurozone HCOB Composite PMI also defied expectations, rising to 53.1 in September, its highest since April 2023, driven by solid growth in both manufacturing and services sectors [2]. Firms reported the sharpest rise in operating costs in four months, strengthening the case for another European Central Bank (ECB) rate hike as early as October [2].
German Chancellor Friedrich Merz's Christian Democratic Union (CDU) suffered severe defeats in state elections, particularly in Mecklenburg-Vorpommern, where the party was barred from the regional parliament. This has raised questions about Merz’s support and the future of the Eurozone’s EUR 2 trillion budget proposal, which includes a significant boost to the bloc's defence program and may be threatened by the pro-Kremlin Allianz fur Deutschland (AfD) [1][2]. Speculation is mounting that Merz could be replaced mid-term in a so-called chancellor swap, further undermining the Euro [2]. Meanwhile, France's debt has reached its highest level since 1978, fueling concerns of a fiscal crisis in the Euro area as investor confidence in government bonds declines and borrowing costs spiral [1].
Market reactions reflect these concerns: EUR/USD remains depressed, unable to draw support from strong PMI data or lower oil prices [1]. EUR/JPY trades just above the 180.00 mark, nearly unchanged for the day, as German political instability offsets upbeat PMIs [2]. The Japanese Yen (JPY) continues to underperform following the Bank of Japan's dovish rate hike to a 31-year high last week, but intervention fears limit aggressive moves [2].
Analyst Pablo Piovano warns that further losses in EUR/USD should not be ruled out, especially after breaking below the critical 200-day SMA above 1.1620. If bulls regain momentum, resistance is expected at the 55-day and 100-day SMAs (1.1526 and 1.1542), with the August top at 1.1711 as the next target. Continued selling pressure could find support at 1.1353 and the 2026 bottom at 1.1324. Momentum indicators favor extra declines, with the RSI approaching 31 and the ADX near 29, indicating a forceful trend [3].
CONCLUSION
Despite strong Eurozone PMI data, the Euro remains under significant pressure due to German political instability and rising French debt, with EUR/USD and EUR/JPY showing muted or negative performance. Analysts expect further downside risk for the Euro, as momentum indicators and technical levels suggest continued selling pressure. The market impact is high, with political and fiscal concerns overshadowing positive economic indicators.