EUR/USD recent highs in focus on critical week

EUR/USD ended Friday in positive territory as the growing sense that Joe Biden would win the November 3 election continued to pressure the greenback.

EUR/USD ended Friday at 1.1857 and some 34% higher on the day and just shy of its 1.1880 highs scored on the 21st October.

The US election polls do still give Biden a commanding lead with just over a week to go in financial markets.

However, there is plenty of activity and alternative themes to drive price action elsewhere.

The stimulus package has been a driver of risk appetite and a pro-dollar on a lack of progress at times, although investors could start to weather news that a US stimulus bill may not be forthcoming ahead of the election.

Instead, with a renewed focus on the European covid-19 spread, the US Gross Domestic Product as well as the European Central Bank meeting could be a game-changer for the single currency, especially if a Biden win is already priced in.

 A strong dovish message from President Lagarde and plenty of hints about more QE in December could be the makings of a shakeout in EUR/USD.

EUR/USD ended Friday in positive territory as the growing sense that Joe Biden would win the November 3 election continued to pressure the greenback.

EUR/USD ended Friday at 1.1857 and some 34% higher on the day and just shy of its 1.1880 highs scored on the 21st October.

The US election polls do still give Biden a commanding lead with just over a week to go in financial markets.

However, there is plenty of activity and alternative themes to drive price action elsewhere.

The stimulus package has been a driver of risk appetite and a pro-dollar on a lack of progress at times, although investors could start to weather news that a US stimulus bill may not be forthcoming ahead of the election.

Instead, with a renewed focus on the European covid-19 spread, the US Gross Domestic Product as well as the European Central Bank meeting could be a game-changer for the single currency, especially if a Biden win is already priced in.

 A strong dovish message from President Lagarde and plenty of hints about more QE in December could be the makings of a shakeout in EUR/USD.

The spread of covid is likely a knock-out blow for the EU recovery but is yet to be reflected in the price of the euro which has continued to run higher regardless. 

Not to mention, the prospects of a hard Brexit and the introduction of tariffs as well as the disruptions to supply chains will hurt EU growth, all of which the central bank will be having to weigh.

Analysts at TD securities explained that there are no new policy announcements at the October ECB meeting. although they do expect the ECB to acknowledge the growing risks to the growth and inflation outlook on the back of rising Covid cases and regional lockdown measures.

''We look for Lagarde to leave the door wide open to augmenting the PEPP in December, which most analysts are now expecting.''

Meanwhile, the Trump campaign will be hoping for what should be a huge 35% (QoQ annualised) bounce back in 3Q20 GDP on Friday to stave off the double-dip fears before the election.

''Real GDP appears to have surged, but after a larger plunge, and probably by a bit less than expected by the consensus,'' analysts at TD Securities explained.

''Our 30% QoQ AR forecast implies a net decline of 4.0% since Q4, identical to the peak-to-trough decline in the severe 2008-09 recession. Meanwhile, timely data are pointing to slowing/stalling early in Q4. Our 4.0% estimate for core PCE prices implies 1.6% YoY.''

EUR/USD levels

The spread of covid is likely a knock-out blow for the EU recovery but is yet to be reflected in the price of the euro which has continued to run higher regardless. 

Not to mention, the prospects of a hard Brexit and the introduction of tariffs as well as the disruptions to supply chains will hurt EU growth, all of which the central bank will be having to weigh.

Analysts at TD securities explained that there are no new policy announcements at the October ECB meeting.

Although, however, they do expect the ECB to acknowledge the growing risks to the growth and inflation outlook on the back of rising Covid cases and regional lockdown measures.

''We look for Lagarde to leave the door wide open to augmenting the PEPP in December, which most analysts are now expecting.''

Meanwhile, the Trump campaign will be hoping for what should be a huge 35% (QoQ annualised) bounce back in 3Q20 GDP on Friday to stave off the double-dip fears before the election.

''Real GDP appears to have surged, but after a larger plunge, and probably by a bit less than expected by the consensus,'' analysts at TD Securities explained.

''Our 30% QoQ AR forecast implies a net decline of 4.0% since Q4, identical to the peak-to-trough decline in the severe 2008-09 recession. Meanwhile, timely data are pointing to slowing/stalling early in Q4. Our 4.0% estimate for core PCE prices implies 1.6% YoY.''

EUR/USD levels