EUR/USD is awaiting the election outcome as a large fiscal stimulus would weaken the dollar. The European Central Bank (ECB) is likely to ease policy in December but despite its concerns, real yields support the euro, per ANZ Bank.
“Our forecasts lean towards a post-election stimulus agreement and a Biden presidency. Biden would also bring a more multi-lateral approach to trade, which would benefit the euro. Whilst the ECB is concerned over euro appreciation, there is little it can do about exogenously driven strength.”
“Domestically, the euro area recovery is at risk of faltering. New COVID-19 cases have surged and governments are reintroducing restrictive measures, including night curfews. These measures are a headwind to the service sector and are adding deflationary pressure.” “We expect the ECB to ease policy again, probably via QE, when it meets in December. However, negative inflation is keeping the euro area real yields high versus the US, adding to euro strength. Verbal intervention may slow the euro’s rise, but it won’t reverse it.”
“The balance of risks points to a move into a 1.20-1.25 range for EUR/USD.”
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