Euro falls back below 1.1200 as US Dollar dominates despite weaker ISM Services PMI

• EUR/USD falls 0.60% on Monday, pressured by persistent US Dollar strength.
• US services activity remained firmly in expansion territory despite losing some momentum in September.
• Political turmoil and concerns over Europe’s public finances add pressure on the Euro.

EUR/USD falls 0.60% on Monday and trades around 1.1190 at the time of writing. The pair remains under pressure as the US Dollar (USD) maintains positive momentum, supported in part by elevated US Treasury yields, while political and fiscal concerns in Europe weigh on the Euro (EUR).

The latest business activity data released on Monday confirmed the resilience of the US economy. The final S&P Global Services Purchasing Managers Index (PMI) was revised slightly higher to 58.8 in September from the preliminary estimate of 58.7. Meanwhile, the Institute for Supply Management (ISM) Services PMI eased to 54.9 in September from 55.4 in August, slightly below the market consensus of 55. However, the indicator remains comfortably above the 50 threshold separating expansion from contraction.

The figures come after last week’s weaker-than-expected US employment report. According to the CME FedWatch tool, markets now assign only around a 20% chance that the Federal Reserve (Fed) will raise interest rates at its October meeting, down from nearly 70% a week earlier. Persistent inflation risks, however, prevent investors from completely ruling out further monetary tightening later this year. Stronger price pressures in the services sector and energy-related inflation complicate the Fed’s efforts to bring inflation sustainably back toward its 2% target.

Against this backdrop, US Treasury yields remain close to multi-year highs, supporting the Greenback. The benchmark 10-year US Treasury yield holds around 5.30%, not far from last week’s peak of 5.34%, its highest level since 2002. However, the rise in US yields also reflects growing concerns over the US debt burden and broader fiscal position. These concerns could limit the US Dollar’s ability to extend its appreciation over a prolonged period.

On the European side, the Euro remains undermined by mounting political and fiscal uncertainty. Concerns are particularly focused on France, where high debt levels, a widening budget deficit and doubts over the government’s ability to pass its 2027 budget are fueling tensions in the bond market. Political uncertainty is also spreading to Spain, where Prime Minister Pedro Sánchez has called a snap election amid growing protests over the housing crisis.

Eurozone economic data nevertheless provide some encouraging signals. The HCOB Eurozone Composite PMI rose to 53.1 in September from 52 previously, while the Services PMI climbed to 53.0 from 51.6, confirming an acceleration in private-sector activity.

The improvement in European economic indicators is not enough to support the Euro against a US Dollar benefiting from elevated yields and an economy that continues to show resilient activity. This divergence keeps EUR/USD under pressure on Monday.

EUR/USD technical analysis

In the one-hour chart, EUR/USD trades around 1.1191, keeping a bearish near-term tone as it holds below the 100-period simple moving average (SMA) at 1.1284 and the 200-period SMA at 1.1332. The pair has slipped under a series of marked horizontal barriers, with momentum subdued as the 14-period Relative Strength Index (RSI) hovers near 38, which hints at persistent downside pressure rather than an oversold washout.

On the topside, initial resistance emerges at 1.1215, followed by 1.1270 ahead of a denser cap formed by the 100-period SMA at 1.1284 and the horizontal level at 1.1312, before the 200-period SMA at 1.1332. On the downside, the first notable support aligns at 1.1161, and a sustained break beneath this floor would likely open the path to further bearish extension in the short term.

(The technical analysis of this story was written with the help of an AI tool. Know more.)