EUR/USD Forecast: Bulls turn cautious near 1.1860-70 supply zone, focus on US politics/NFP

The markets have been betting that Democrat candidate Joe Biden will become the next US president. That said, the final result remains unclear two days after polls closed on Wednesday and hangs on the vote count from few remaining battleground states. It is worth reporting that neither candidate, so far, has the required 270 Electoral College votes to win the White House. Adding to the high degree of uncertainty, Republican incumbent President Donald Trump has threatened to undermine the victory by challenging its legality in court. Meanwhile, a contentious US presidential election diminished hopes for large stimulus packages to support the economy any time soon.

Expectations for less fiscal spending led to some follow-through decline in the US Treasury bond yields, which, in turn, weighed heavily on the US dollar. Apart from US politics, a strong risk-on rally in the US equity markets further undermined the greenback's relative safe-haven status and pushed the EUR/USD pair back above the 1.1800 mark. The euro bulls seemed rather unaffected by weaker German Factory Orders/EU Retail Sales data and the European Commission's downwardly revised growth projections for 2021/22. In the Autumn European Economic Forecast, GDP growth for 2021 was revised down to 4.2% from 6.1% and was projected to slow further to 3.0% in 2022.

Meanwhile, the latest FOMC monetary policy decision failed to provide any respite to the USD bulls and turned out to be a non-event for the markets. Policymakers unanimously voted to leave the target federal funds rate range unchanged at 0.00-0.25% and continue expanding its balance sheet at the current pace. The decision was on expected lines as the US central bank preferred to stay sidelined this meeting in light of the November 2020 elections. Nevertheless, the pair shot to near two-week tops, albeit the momentum stalled a near two-month-old trading range resistance, around the 1.1860-70 region.

The pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range through the Asian session on Friday. Market participants now look forward to the release of the closely-watched US monthly jobs report – popularly known as NFP. This, along with US political developments, will play a key role in influencing the USD price dynamics and produce some meaningful trading opportunities on the last day of the week.

Short-term technical outlook

From a technical perspective, bulls are likely to wait for a sustained move beyond the 1.1860-70 hurdle before positioning for any further appreciating move. Above the mentioned barrier, the pair seems all set to surpass the 1.1900 mark and test the next resistance near 1.1945-50 region. Some follow-through buying might now assist the pair to make a fresh attempt to conquer the reclaim the key 1.2000 psychological mark.

On the flip side, dips below the 1.1800 mark might now attract some buying near 50-day SMA, around the 1.1775 region. A subsequent fall could get extended towards the 1.1725-20 horizontal level, below which the pair could slide back towards challenging the 1.1610-1.1600 strong support. A convincing breakthrough will negate prospects for any near-term positive move and turn the pair vulnerable to accelerate the fall further towards the 1.1500 round-figure mark.