EUR/USD: Fundamental reality disagrees with recent gains

EUR/USD has been holding onto gains stemming from stimulus hopes but foreign interference in the US elections and rising COVID-19 cases could limit any profit, Yohay Elam, an Analyst at FXStreet, informs.

Key quotes

“The main reason for the recent upswing comes from fiscal stimulus negotiations, which have weighed on the safe-haven dollar. House Speaker Nancy Pelosi reported progress and said they can now begin to ‘put pen to paper’ on a generous stimulus bill after speaking with Treasury Secretary Steven Mnuchin.”

“Senate Republicans would prefer to focus on the Supreme Court – and some are also reluctant to back generous welfare. Both sides have begun talking about approving new measures only after election day, November 3. However, the monumental event could turn everything upside down. Getting anything done in the ‘lame-duck session’ – the period after the vote and before the newly elected officials assume office – seems unlikely. Markets could be too optimistic.” 

“US security officials revealed that both Iran and Russia have obtained voter registration files and have sent threatening messages to voters. While they assured that the election infrastructure is resilient, the news of foreign intervention has already weighed on sentiment and boosted the greenback.”

“Another source of concern is COVID-19. Cases have been rising for long weeks, but infections have accelerated recently, prompting additional restrictions from national, regional, and local authorities. The winter wave of the pandemic in Europe may limit the euro's advance while an increase in US hospitalizations is also a factor that could keep EUR/USD in check due to haven flows.” 

“Apart from politics and the virus, US jobless claims are set to move markets on Thursday. After a leap to 898,000 applications, a drop is on the cards. The data is for the week ending October 16, which is when the Non-Farm Payrolls surveys are taken.”