EUR/USD Forecast: Ready to fall toward 1.16? Covid and the elections are spooking markets

Trick or treat? It is almost Halloween and any positive figures look tricky and unconvincing amid the general gloom. France has reported a leap of 18.2% in the third quarter, better than estimated and the best on record. However, the recovery from the depths of the first coronavirus wave is already making way to the second coming of the virus. EUR/USD's recovery is set to resume its falls.

Christine Lagarde, President of the European Central Bank, warned that a double-dip recession – a return to contraction in the current quarter cannot be ruled out. The Frankfurt-based institution left its policy unchanged but laid the ground for acting in December when staff releases new economic forecasts. 

See ECB Analysis: Gloomy Lagarde lays ground for stimulus, next euro moves depend on covid

Her words came just after the eurozone's largest countries announced new measures to curb the surge of the disease, something that is set to halt the recovery. French President Emmanuel Maron said that the current surge is worse than the first one, while German Chancellor Angela Merkel said the EU should have acted earlier. 

The upbeat French Gross Domestic Product figures imply better than projected eurozone data, yet markets are focused on October and November rather than the three months ending in September. Inflation – which Lagarde says will likely remain negative until early 2021 – is forecast to hover around 0% in October.

See Eurozone Third Quarter GDP Preview: The best view may be to the rear

Markets are also concerned about US COVID-19 cases, which have hit a new high above 83,000. The disease is most prevalent in the colder Upper Midwest states – some of the critical battlegrounds in the upcoming elections. Over 82 million Americans have voted – nearly 60% of the 2016 vote count. 

Election fever: Thursday's flurry of opinion polls did little to change the picture – Democrat challenger Joe Biden has a considerable lead in national polls and a significant one in key states. According to Nate Silver's FiveThirtyEight, the challenger has an 89% chance of winning the presidency, while Dems have a 77% the Senate. Control of the upper chamber is critical to passing a stimulus package. 

Source: FiveThirtyEight

Nevertheless, President Donald Trump's upset victory in 2016 created a notion that polls cannot be trusted. Both camps – and markets – foresee a tighter race. Moreover, investors fear a close race could lead to a contested election. The US dollar benefits from safe-haven flow amid growing fear. 

Additional opinion polls, especially from Florida and Pennsylvania, are set to move markets. Traders may want to take risk off the table ahead of the Halloween weekend. 

More: How three US election outcomes (and a contested result) could rock the dollar

The US releases Personal Income and Personal Spending figures for October, yet their impact may be minimal with covid and the elections dominating trading.

America's economy recorded a growth rate of 33.1% in the third quarter – the best on record – but coming after the worst ever. While the statistic beat estimates, GDP is still below the same time last year, and similar to the eurozone, markets are looking to the present and the future. 

All in all, EUR/USD has more room to the downside. 

EUR/USD Technical Analysis

Euro/dollar continues suffering from downside momentum on the four-hour chart and trades well below the 50, 100, and 200 Simple Moving Averages. The Relative Strength Index has topped the 30 levels, thus exiting oversold conditions and making room for fresh falls. 

Bears remain in the driver's seat. 

Support awaits at 1.1650, the fresh low recorded on Thursday. It is followed by 1.1625, which was a low point in mid-September, and then by 1.1610. 

Resistance is at 1.1695, the daily high, followed by 1.1720, which was a swing low earlier this week. Further above, 1.1745 and 1.1785 await EUR/USD. 

More: How low will markets go? State of play after the covid-related fall, ahead of a huge week