EUR/USD Forecast: Downfall coming? Euro squeezed by covid, elections, and stimulus stalemate

Winter is coming but the autumn is already awful. Coronavirus is raging in the old continent and weighing on the euro, pushing it off the highs. France has reported a daily record of cases on Saturday – only to surpass it on Sunday and reach 52,000. Per population, Belgium and the Netherlands are doing worse than their southern neighbor. 

Governments are also taking action. Spanish Prime Minister Pedro Sánchez addressed the nation and declared a new state of emergency that he wishes to extend until May while Italy is preparing additional limitations that would help curb the disease – and also risk the economic recovery. 

While the increase in Europe's spread of the disease is weighing on the euro, the increase in the US is boosting the safe-haven dollar. The world's largest economy reported daily records of above 80,000 cases, pushing its seven-day moving average higher. 

The disease is also spreading in the White House, where several aides to Vice-President Marc Short have come down with the virus. Moreover, hospitals in Utah are preparing to ration admission to Intensive Care Units, in a grim reminder of the first wave in New York. 

Mortalities are on the rise on both sides of the Atlantic:

Source: FT

Another factor for the flight to the safe-haven dollar is the probable breakdown of fiscal stimulus talks. House Speaker Nancy Pelosi and White House Chief of Staff Mark Meadows were busy pointing the figure at each other over the weekend.

With so little time until the elections, a deal always had little chances – but now markets seem to come to grips with it. Moreover, Senate Republicans are focused on confirming Amy Coney Barret to the Supreme Court and remain skeptical about the need for further stimulus. 

The upcoming US elections are also a cause for uncertainty and dollar demand. Challenger Joe Biden continues leading President Donald Trump, and Democrats have a chance of flipping the Senate. Investors favor such a "blue wave" that would enable passing a generous stimulus package.

However, there have been few opinion polls since the last presidential debate, and speculation remains rife. See: US Elections: Debates matter but how much?

Dems have a 73% chance of winning the upper chamber according to Nate Silver's FiveThirtyEight.

Source: FiveThirtyEight 

It is essential to note that nearly 60 million Americans have already cast their ballots – including Trump – and that amounts to around 43% of the total vote count in 2016. Turnout is set to break records in 2020. 

All in all, this trifecta of worries is weighing on EUR/USD. 

The economic calendar features the German IFO Business Climate for October, which may edge lower due to the pandemic's winter wave. Later in the day, US New Home Sales for September are projected to show annualized sales holding above one million. 

EUR/USD Technical Analysis

Euro/dollar set a lower high and momentum on the four-hour chart has turned negative – both bearish signs. However, the currency pair is holding above the 50, 100, and 200 Simple Moving Averages. 

Critical support awaits at 1.1785, which was a low point on Friday and also where the 50 SMA hits the price. Further down, 1.1760 was a support line on the way up and it is followed by 1.1720 and 1.1685. 

EUR/USD is struggling with 1.1840, which provides support last week. The next level to watch on the upside is 1.1860, the daily high, followed by 1.1880, October's peak. 

See 2020 Elections: Seven reasons why this is not 2016, time to focus on the Senate