|

EUR/USD Forecast: Euro set to resume falls as elections enter contested territory

  • EUR/USD has been experiencing high volatility as the US presidential elections are yet to be decided. 
  • The longer the race extends, the better for the safe-haven dollar.
  • Wednesday's four-hour chart is favorable for the bears.

Into infinity and beyond – the neverending US 2020 Presidential Elections have no clear winner at the time of writing, pushing the safe-haven dollar higher and potentially extending its gains.

President Donald Trump has outperformed opinion polls with an early clinch of Florida – his newly-adopted home state. Carrying the Sunshine State instantly made the race far closer than anticipated and sent EUR/USD to 1.16. The currency pair recovered when rival Joe Biden pulled ahead in Arizona – with some networks calling the state for him.

"Mirages" complicated the case. A "red mirage" of a Trump win was seen in Georgia, and in several Midwestern states, while a "blue mirage" was seen in North Carolina, Texas, and Ohio. 

At the time of writing, the races in North Carolina, Georgia, Wisconsin, Nevada, Michigan, and last but not least, Pennsylvania – all remain open. 

Biden expressed optimism about winning and said the American people will eventually decide, while Trump said "Frankly, It think we won" and accused Democrats of fraud. Trump tweeted "they are trying to steal the election." The president's statement sent markets tumbling and the dollar higher. 

However, markets have since calmed, allowing EUR/USD to move higher in anticipation of more results, and as Biden seems to be gaining ground in Wisconsin. 

It is essential to note that several states allow mail-in ballots to arrive after election day – as long as they are postmarked on November 3 or beforehand.

Patience is virtue markets do not possess.

The longer the process lasts, the less this is likely. A contested election is the markets' worst scenario. Even if the networks call winners in states and a victor in the presidential elections, lawyers are already gearing up for legal fights. Recounts could be called if races are withing razor-thin margins, further prolonging the process. 

Investors originally preferred a "blue wave" that would see Democrats winning the Senate in addition to the White House. However – at least for now – Republicans seem to hang onto seats in North Carolina and Maine, thus retaining control.

In this outcome, there is room for a change of heart for markets – potentially preferring Trump. 

See 2020 Elections: Why markets may now ditch Biden and cheer Trump

The dramatic US elections overshadow other developments. In Europe, coronavirus cases continue rising at a worrying rate, yet no new lockdown measures are announced. In America, the ADP private-sector Non-Farm Payrolls and the ISM Services Purchasing Managers' Index are set to print robuts figures. Both serve as hints to Friday's Nonfarm Payrolls, yet market attention is directed at the states. 

European Central Bank member Hernando de Cos said it is highly likely the ECB could implement new measures in December – echoing the words of his boss, President Christine Lagarde. 

EUR/USD Technical Analysis

Euro./dollar volatility has exploded, and as the just settles, bears remain on top. The currency pair is trading below the 50, 100, and 200 Simple Moving Averages, while momentum is flitting between the upside and the downside. 

Support awaits at 1.1650, which served as support last week, followed by 1.1620 and the fresh low of 1.16.

Resistance is at 1.1710, a swing high from last week, followed by 1.1720 and 1.1770, the latter being the election night high.

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD sits at three-week highs above 0.7000 on hawkish RBA-speak

AUD/USD holds a positive bias for the fourth straight day, trading above 0.7000 in the Asian session on Wednesday and at three-week highs. RBA Deputy Governor Andrew Hauser's hawkish remarks and inflation concerns underpin the pair. However, the upside appears capped as the US Dollar attracts some buyers amid looming US-Iran uncertainty.

USD/JPY remains confined in a familiar range below 158.50

USD/JPY sees some dip-buying in the Asian session on Wednesday, though it remains confined within a multi-week range near 158.50 as the uncertainty over the timing of the next BoJ rate hike keeps Japanese Yen bulls on the defensive. Meanwhile, hawkish Fed expectations, bolstered by inflation risks stemming from volatile oil prices, underpin the US Dollar. However, looming intervention fears could limit JPY losses and cap the currency pair.

Gold appears slightly bid above $4,100

Gold prices manage to reverse three consecutive daily declines, trading just above the $4,100 per troy ounce on Wednesday. The yellow metal’s recovery comes amid a humble advance in the US Dollar, mixed US Treasury yields across the board and a widespread cautious tone from the US-Iran front.

Bitcoin eyes a break above $85,000 as institutional demand returns

Bitcoin edges higher above $83,000, extending its rebound from the 50-day EMA near $80,786. US-listed BTC spot ETFs recorded over $23 million in net inflows on Tuesday, following Monday's $526 million, signaling a return of institutional demand.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.

The US Dollar fell. Gold didn't rally. That tells you everything
Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.