EUR/USD Weekly Forecast: Tumultuous days ahead in the US

• Q3 growth figures were overshadowed by prospects of an economic contraction in Q4.
• The presidential election may bring more civil unrest to the US.
• EUR/USD gaining bearish potential in the long-term, eyeing 1.1470.

The US presidential election, the Federal Reserve monetary policy meeting and the release of the October Nonfarm Payroll report, will all take place next week. The dollar is up against most of its major rivals ahead of these first-tier events, trading around 1.1690 against the shared currency.

Dovish ECB amid resurgent covid contagions hurt the euro

As said in the previous weekly report, it’s all about growth. The second wave of coronavirus is taking its toll in the northern hemisphere, with cases in Europe rising exponentially and the US reaching a record of over 85K new contagions in one day. What gives the greenback an advantage is that the US economy remains open, while in Europe, more restrictions have been announced this week. German and France have been the latest to take tougher social measures in an attempt to curve the spread of the virus. Such measures will further delay an economic comeback, and could even mean a steeper downturn.

Growth-related figures released in the past few days were upbeat but were also overshadowed by prospects of a steeper economic downturn in Q4.  The European Central Bank had a monetary policy meeting on Thursday, and President Christine Lagarde said that while Q3 GDP data might surprise to the upside, as it actually did, Q4 growth will be on the downside. The Government Council paved the way for additional stimulus in December, announcing they will  “recalibrate” all available tools.

The US reported Q3 Gross Domestic Product, which was up 3.7% in the three months to September, with the annualized growth hitting a record of 33.1%. Quarterly figures from the Union beat expectations, as German Q3 GDP came in at 8.2% while the EU figure posted 12.7%. The numbers were old history before being released, as the market was still hearing the echoes of Lagarde’s doom and gloom.

Trump vs Biden

US President Donald Trump and opponent Joe Biden will see the end of their race next Tuesday. With the economy in trouble within the pandemic context, this particular election will be far noisier than previous ones. Not only because Trump still refuses to say he would accept the results, but also because in some states, the election vote count could take up to two weeks to be completed. Concerns that rioting and civil unrest would escalate in those days are mounting amid the current heated mood that keeps the country divided. Whatever the outcome, turmoil is expected in financial markets with risk-off probably taking over.

Employment data and the Federal Reserve will join the hustle and bustle

As elections were not enough, the US Federal Reserve is having a monetary policy meeting, concluding on Thursday. The central bank is expected to remain on hold, and there are little chances that American policymakers will announce more stimulus coming in the near-term, opposite to what the ECB and other central banks have done these days. However, Powell and company won’t have another choice but to continue pledging to do whatever it takes to support the economy.

On Friday, the country will publish the US October Nonfarm Payroll Report. The economy is expected to have added 850K new jobs in the month, while the Unemployment rate is seen decreasing to 7.7% from 7.9%.

As for Europe, the macroeconomic calendar will be quite light, as the most relevant figure will be EU September Retail Sales, foreseen up 2.4% MoM. Finally, Markit will publish the final versions of its October PMIs for the EU and the US.

EUR/USD technical outlook

The EUR/USD pair is set to close the week at the lower end of its recent range. The weekly chart shows that it bottomed around a bullish 20 SMA while technical indicators head firmly lower near their midlines. Sustained weakness will increase the risk of a steeper decline in the mid-term.

Daily basis, the EUR/USD pair has fallen mid-week below a now horizontal 20 DMA and found support around a still bullish 100 DMA. Technical indicators have stabilized within negative levels. The bearish potential has also increased.

The immediate support level is 1.1650, the weekly low, followed by the 1.1560 price zone. Below this last, the next bearish target is 1.1496, March monthly high. A static resistance level comes at 1.1730, followed by the 1.1800 figure. In a risk-averse environment, chances of an advance beyond this last are null.

EUR/USD sentiment poll

The FXStreet Forecast Poll shows that investors are expecting the dollar’s momentum to persist next week. 64% of the polled experts are bearish, averaging on target 1.1662. Bulls take over in the monthly and quarterly views, although the pair is not expected to post a relevant bullish breakout.

In the Overview chart, moving averages lack directional strength. Moving averages continue to move within familiar levels. The shorter-term one has turned lower, while the monthly one heads marginally lower. The longer-term moving average remains horizontal. The spread of possible targets is quite limited, a sign of the current uncertainty.

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