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EUR/USD Forecast: Euro vulnerable to adverse stimulus headlines, lower highs signal fall

  • EUR/USD has been holding up on hopes for US fiscal stimulus and despite rising eurozone cases. 
  • An adverse headline from Washington and dovish ECB comments could bring it down.
  • Thursday's four-hour chart is pointing to a loss of upside momentum and lower highs.

President Donald Trump seems to be recovering from COVID-19 – and EUR/USD should probably focus more on rising cases in the old continent. Germany reported over 4,000 daily cases, the highest since April. Jens Spahn, Germany's Health Minister, said the infection numbers are worrying. Berlin already imposed restrictions, following Paris and Madrid – the latter capital living in lockdown. 

Euro/dollar is beginning to reflect the increase in coronavirus cases, failing to hold onto 1.18 despite an otherwise upbeat market mood. 

Stocks are on the rise and the safe-haven dollar is broadly lower as US lawmakers continue exchanging ideas – at least publically – for another stimulus package. Trump cut off talks on Tuesday, rejecting the Democrats' $2.2 trillion proposals but he has since offered piecemeal suggestions.

Dems, leading in the polls, are unlikely to cede ground after the president's abrupt move, leaving room for adverse headlines and a strengthening of the greenback

More Who will be the next president? Markets seem to care more about Congress' actions (for now

If fresh funds from the government do not come in the upcoming weeks, there is a rising chance for an even larger package after the elections. Former Vice-President Joe Biden is enlarging his lead over Trump in both national and battleground polls.

According to FiveThirtyEight, he has an 84% chance of winning, and The Economist's model gives him 91%.

Source: The Economist

Vice President Mike Pence and Senator Kamala Harris clashed in the Vice-Presidential debate. The encounter was far more civilized than the presidential one and focused on the topics.

It is hard to say who won, as both candidates repeated known attack lines and focused on their rival's bosses rather than on themselves. Trump and Biden are septuagenarians who may need to replaced by their VPs in the age of coronavirus. 

More: VP Debate Analysis: What we have learned about Pence and Harris

Central banks have been on the sidelines amid a growing role for politics, but they still have an impact. The Federal Reserve's meeting minutes reflected recent messages from the world's most powerful central bank – low rates for longer, but no imminent action now.

The document revealed that the Fed is cautiously optimistic about the recovery in the third quarter, but that the bank also assumes fiscal stimulus – something that cannot be taken for granted. 

The European Central Bank's meeting minutes are due out later on Thursday. They may shed light on the clash between the doves – who advocate more stimulus amid rising COVID-19 cases – and hawks, who prefer waiting for now. Luis de Guindos, Vice-President of the ECB, insisted that the bank still has firepower. 

Weekly US jobless claims are also of interest and are set to show a decrease in new applications, reflecting the ongoing recovery. 

See US Initial Jobless Claims Preview: Unemployment filing and payrolls reverse in September

Overall, politics in the US and coronavirus in Europe stand as EUR/USD movers. 

EUR/USD Technical Analysis

Euro/dollar has found resistance at 1.1780, under the weekly high of 1.1810 – resulting in a lower high and breaking the winning streak of higher highs and higher lows. Moreover, the upside momentum on the four-hour chart is waning. On the other hand, the currency pair is still trading above the 50 and 100 Simple Moving Averages. Losing them would embolden the bears.

Some support awaits at the daily low of 1.1750, followed by 1.1724, which was Wednesday's trough. It is followed by 1.1685 and 1.1625. 

Resistance is at 1.1780 and 1.1810 mentioned earlier, followed by 1.1830 and 1.1870, levels that played a role in late September. 

See 2020 Elections: How stocks, gold, dollar could move in four scenarios, nightmare one included

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.

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