EUR/USD Forecast: 3 drivers to watch after the Dems' win boosts the pair

The EUR/USD hit a new two-week high of 1.1473 during the US election night before consolidating in the mid-1.1400s. Republicans retained the Senate and Democrats won the House as expected, but it was quite dramatic.

Early on, Democrats seemed to be on course for a landslide, and the greenback dropped. The odds turned against them later on, and Republicans were in reach of retaining the House. The US Dollar bounced back and the EUR/USD temporarily fell below 1.1400. As time passed by, Democrats gained more and more seats and the US Dollar fell back down.

While the result was expected, a divided government will make Trump's life more complicated. He will face fierce opposition if he wants to enact more tax cuts and will face investigations on his business dealings.

At the moment, markets are moving on after the limited reaction and it's back to the known topics.

1) Italy: The clash between Italy and the European Commission over the budget deficit continues. Italian Economy Minister Giovanni Tria expressed optimism for a compromise, but there are no details.

2) Brexit: Another factor moving the Euro comes from across the channel: Brexit negotiations have reached crunch time. Optimism for a deal, even as soon as this week, prop up the Pound and also support the Euro. Developments on this front are eyed.

3) Monetary policy divergence: Last but not least, monetary policy divergence remains the underlying driver and it is not favorable for the pair. The European Central Bank lags behind the Fed in its withdrawal from the stimulus. More importantly, recent signs of weakness in the euro-zone endanger the ECB's path for raising rates in September 2019 and may even result in a fresh TLTRO program, injecting more money into the economy as the QE program concludes by year end.

We will get a reminder of the Fed's hawkish path on Thursday when Chair Jerome Powell and his colleagues announce their rate decision. The FOMC is projected to leave the door wide open for a rate hike in December. 

EUR/USD Technical Analysis

The EUR/USD trades above the 50 Simple Moving Average on the four-hour chart. The Relative Strength Index is above 50 but below 70, not reflecting oversold conditions, also a bullish sign. Momentum remains to the upside. 

The EUR/USD is alongside uptrend support which is below 1.1400 and below a more moderate uptrend resistance line. 

1.1455, which capped the pair earlier this month is in play at the time of writing. 1.1495 capped the pair in mid-October. The next level to watch is 1.1550 that was a swing high in mid-October. 1.1620 is next up the line.

1.1394 was a swing low during election night. 1.1355 was a low point earlier this week. 1.1330 supported the pair in late October, and the most substantial support line is 1.1300, a double-bottom.

More: EUR/USD eyes levels above 1.1500 after Democrats win the House – Confluence Detector