EUR/USD Forecast: Lagarde and Trump push euro to critical support at 1.17

"Low inflation poses fundamental challenges" – these words by Christine Lagarde, President of the European Central Bank, are weighing on the euro. The ECB is worried about weak consumer prices after preliminary German Consumer Price Index figures showed ongoing softness. Will the Frankfurt-based institution add to its stimulus?

While the head of the ECB is pushing in that direction, the hawks are ready to fight back. Jens Weidmann, President of the German Bundesbank, said that large quantities of bond-buying blur the lines between monetary and fiscal policy.

The northern members of the eurozone are wary that the bank loses its independence by financing governments. Nevertheless, Lagarde has the last words and she is lowering the euro.

EUR/USD was already hamstrung after the first US presidential debate. Incumbent Donald Trump and challenger Joe Biden clashed in a chaotic 90-minute battle which left most viewers annoyed. Markets responded in earnest to the president's refusal to say he would accept the election results. Concerns about a contested election and a constitutional crisis – have risen. 

Biden holds onto his lead in both national polls and state ones, with fewer undecided voters than in 2016. Nevertheless, uncertainty remains elevated and several "October surprises" could still be seen.

See Presidential Debate: Stocks set to suffer on Trump's refusal to accept the results

The upcoming vote and the ugly debate lower the chances that Republicans and Democrats get their act together and agree on fiscal stimulus. A weak jobs report could push politicians to strike a deal, and the first hint toward the Non-Farm Payrolls is due out later in the day.

ADP's private-sector jobs report is set to show an increase in hiring in September. The firm's figures have been poorly correlated with the official NFP of late, potentially reducing the market impact.

See US ADP September Preview: Payrolls rise, correlation and interest falls

The US also releases final Gross Domestic Product figures for the second quarter. Economists expect the report to confirm an annualized plunge of 31.7% in output in the three months ending in June, before a surge in the quarter concluding now.

End-of-quarter flows may trigger higher volatility around 15:00 GMT, the time of the London fix. 

Overall, the euro may come under renewed pressure and the dollar could receive a further boost.

EUR/USD Technical Analysis

Euro/dollar continues benefiting from upside momentum on the four-hour chart and it holds above the 50 Simple Moving Average. On the other hand, the currency pair is trading below the 100 and 200 SMAs.

Critical support awaits at 1.17, which is a round number and where the 50 SMA hits the price. It is followed by 1.1685, which held EUR/USD last week, and then by 1.1610. 

Resistance is at 1.1755, the daily high, followed by 1.1820, a support line from early September. Further above, 1.1875 and 1.1920 await the world's most popular currency pair. 

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