Today we shall take a look at the EUR/USD currency pair. The exchange rate spent all of last week dropping and currently finds itself at 5-week lows around the 1.1650 price level.
At the moment, the European single currency appears to be headed towards further weakness. The second wave of the coronavirus pandemic has hit Europe pretty hard and many countries are tightening their local restrictions, even implementing national lockdowns. The economy was already in a battered state after the first wave and the lockdowns from the first half of 2020, but now it is set for a double-dip as the recession worsens amid the pandemic. Though the European Central Bank did not adjust its policy at last week’s meeting, President Lagarde gave a grim prognosis for the near future, which suggests that at the December policy meeting we could see a further easing. Cutting interest rates lower than they are is an option, but it is more likely that the central bank will increase its asset purchasing programs. If the EUR/USD drops below the strong support at 1.16, a further easing of monetary policy could weaken the euro. However, should the single currency hold its ground, the extra stimulus may have a positive impact as it will boost the speed at which the economy is recovering.
The US dollar is at a crossroads, in large part thanks to the Presidential elections taking place tomorrow. The vote itself is increasing market volatility, though it seems investors have been preparing for a Biden win for weeks now. Historically, market participants have used the S&P 500 index as a predictor in the months leading up to the elections. Based on the current developments, the S&P 500 indeed favors a Biden win, though the race will be close, considering how inaccurate polls have proven in the past. Nevertheless, due to global pessimism caused by the deterioration of the coronavirus pandemic, especially in Europe and in the United States, safe havens like the USD will remain in demand. If Biden wins the election, the dollar may weaken, but it is possible that this year we won’t have the final result on election day due to more mail-in voting. Thus, at least a few days of more strength may be in store for the dollar.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1645, with the price currently trading right around it. The daily support levels lie at 1.1637 and 1.1631. The daily resistances are located at 1.1651 and 1.1659, both overcome. The indicators of technical analysis agree in strongly recommending a sell position today.
