EUR/USD Forecast: Trump's bullishness may be premature and other reasons to go short

Will the presidential U-turn trigger a U-shaped EUR/USD recovery? Not so fast. President Donald Trump has changed his mind and now wants to negotiate a stimulus deal with Democrats. The White House's new approach comes is boosting stocks and weighing on the dollar, helping the common currency.

Earlier this week, Trump abruptly cut off talks with Dems, a move he clearly regrets as he uses equity indexes as a measure of his success – and they dropped in response. 

However, while Trump, House Speaker Nancy Pelosi, and US Treasury Secretary Steven Mnuchin want a deal, Senate Republicans seem reluctant to go along. Majority Leader Mitch McConnell said that some of his colleagues feel they have already done enough." 

Moreover, the veteran Kentucky Senator added that his last visit to the White House was on August 6, as worries about their lax approach to coronavirus. McConnell seems to be distancing himself from Trump – perhaps calculating that the president is on his way out. 

National and state polls have shown that challenger Joe Biden is increasing his gap against Trump, opening the door to a landslide victory. According to FiveThirtyEight, Biden has an 85% chance of winning, while The Economist gives the former VP a 92% probability of ousting the current occupant of the White House. Even when accounting for a polling error the size and direction of that in 2016, Biden is still forecast to win:

Source: The Upshot

For markets, it means a lower chance of stimulus, and thus a potential rise in the greenback.

More: State of the race: Where do Trump and Biden stand after the first debates, fast news

Other issues may also weigh on EUR/USD. Coronavirus cases are surging in the old continent, prompting a potentially new state of emergency in Spain, restrictions in more French cities, and measures in other countries as well. Infections in the EU are nearing American levels:

Source: FT

Another reason to be skeptical of EUR/USD gains is the long weekend in the US. Investors may prefer taking bets off the table. 

All in all, there is a chance that the current rise is a selling opportunity.

EUR/USD Technical Analysis

Euro/dollar is rising but momentum on the four-hour chart remains to the downside. A break above the 200 Simple Moving Average still needs to be confirmed. Overall, the picture is mixed. 

Strong resistance is at 1.1810, which is the weekly top and the highest since mid-September. That would open the door to 1.1830, 1.1870, and 1.1920. 

Support is at 1.1780, which capped EUR/USD twice this week. Next, 1.1755, 1.1725, and 1.1685 provided support in recent weeks. 

More: Elections Matter: The pause that decides