The latest S&P Global German Manufacturing PMI, also issued on Monday, revealed that the strongest economy in Europe was in a contraction zone that has not happened since two years ago, with severe drops in new orders burdening industrial output.
The economics associate director of the S&P Global Market Intelligence, Phil Smith, claims the following: “The potential for a shortage in gas supplies has German manufacturers seriously worried about the outlook for production in the coming year. Goods producers’ expectations turned negative back in March, and have deteriorated in almost every month since then as downside risks to the sector’s outlook continue to build.”
The EUR/USD is expected to be guided by the US Dollar for the week ahead because the economic calendar for the Eurozone is rather sparse. Because the US Dollar index (DXY) recorded a high of 109.02 in the middle of last month, the US Dollar has been drifting downward. Over the past few weeks, US Treasury yields have decreased as investors digest the recent round of abrupt US raising rates and start pricing in US rate reduction in the 2023 second quarter.
Even so, the yield differential between the US dollar and various other G7 nations will act as a short-term restraint on US dollar weakness. Nevertheless, as other key central banks keep up and raise rates dramatically, this differential will constrict over the weeks and months that follow, causing a variety of USD pairs to weaken.
Despite still being in a longer-term downturn against the US dollar, the euro is now attempting to create a range of support for the near future. A re-test of 1.0340 is possible if the previous highs that the pair is now pushing into, which extend up to the 1.0280 region, are convincingly breached. 1.0380 is the next significant area of resistance over this. 1.0080 to 1.0100 constitutes the current support range.
According to data from retail traders, 58.00% of traders are net-long. From Sunday and the week before, net-long traders are 1.94% higher and 2.84% lower, respectively. Correspondingly, net short traders are 5.43% higher and 4.65% higher from Sunday and the day before.
Given that traders are net long, it is possible that the EUR/USD price decline will persist. However, traders are much less net-long on Monday than they were on Saturday and the week prior. Regardless of the fact that traders are still net-long, recent shifts in mood signal that the existing EUR/USD price may shortly revert upward.
