- EUR/USD has been advancing on high hopes for a US fiscal deal.
- A potential deadlock in talks, fears of a contested election, and rising US cases may come to haunt the pair.
- Thursday's four-hour chart is painting a mixed picture for euro/dollar.
One last chance – US Treasury Secretary Steven Mnuchin has given himself and House Speaker Nancy Pelosi another go at reaching a deal on a new relief package, and both are reporting progress. Optimism from Capitol Hill is boosting markets and pushing the safe-haven dollar lower.
EUR/USD is zooming in on the weekly high of 1.1755. Can it break that level? Momentum could push it higher but risks are prevalent.
First, Democrats want a stimulus bill worth more than $2 trillion, while Mnuchin is reportedly only ready for around $1.5 to $1.6 trillion. While both sides seem to agree on sending another check to all Americans, aid to states seems like a stumbling block.
And while announcements of layoffs – from Disney through airlines and to banks – have nudged these two politicians, not all are on board. Senate Majority Leader Mitch McConnell and White House Chief of Staff Mark Meadows seem skeptical about reaching an accord.
In the meantime, investors are content with President Donald Trump's signing of a stopgap measure to prevent a government shutdown. A potential breakdown of talks could bring stocks down and the dollar back up.
Another risk comes from Trump – the president refused to commit to accepting the election results in his presidential debate with rival Joe Biden. Opinion polls following the chaotic clash show the challenger may strengthen his lead in the polls.
While markets prefer certainty – a clear winner – they are still concerned that the president would refuse to step down in an extreme scenario.
A third factor to consider is the ongoing increase in European COVID-19 cases. While deaths from the disease are still low in comparison to the US, fears of a devastating winter may weigh on the euro.
In the immediate term, investors will be watching data. ADP's jobs report showed an increase of 749,000 private-sector positions, better than had been expected. Another hint toward Friday's Non-Farm Payrolls comes from the ISM Manufacturing Purchasing Managers' Index. While the headline is projected to edge higher, hiring is forecast to remain depressed in America's industrial sector.
Economists expect weekly jobless claims to resume their drop after an unexpected bump higher last week. The US also releases Personal Spending and Personal Income figures for August, potentially showing the impact of the lapse of several government support programs that month.
Overall, there are still several reasons to remain worried, potentially reversing a break higher and creating a "fakeout" – common in EUR/USD trading.
EUR/USD Technical Analysis
Break or bounce at 1.1755? That is the question. The line is the weekly peak and the highest since September 23. It is followed by 1.1765, where the 100 Simple Moving Average on the four-hour chart hits the price. Further above, 1.1785 was a swing low in early September and it is followed by 1.1810, which is where the 200 SMA hits the price.
Euro/dollar is benefiting from upside momentum and has secured its move above the 50 SMA. However, the Relative Strength Index is nearing 70, closer to overbought conditions.
Support is at 1.1740, a support line from last week, followed by 1.1685, a swing low recorded on Wednesday. The next lines to watch are 1.1625 and 1.1610.
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