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

EUR/USD has attempted to stabilize after the ECB sent it down.
Concerns about the virus in Europe and uncertainty about the elections are set to weigh on the pair.
Friday's four-hour chart is painting a bearish picture.

Yohay Elam FXStreet

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

Author

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.

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.