EUR/USD Forecast: Downfall coming? Euro squeezed by covid, elections, and stimulus stalemate


  • EUR/USD has been under pressure as coronavirus cases are surging in Europe and the US.
  • US fiscal stimulus talks seem closer to collapse. 
  • Uncertainty about the elections also boosts the safe-haven dollar. 
  • Monday's four-hour chart is painting a mixed picture.  

Winter is coming but the autumn is already awful. Coronavirus is raging in the old continent and weighing on the euro, pushing it off the highs. France has reported a daily record of cases on Saturday – only to surpass it on Sunday and reach 52,000. Per population, Belgium and the Netherlands are doing worse than their southern neighbor. 

Governments are also taking action. Spanish Prime Minister Pedro Sánchez addressed the nation and declared a new state of emergency that he wishes to extend until May while Italy is preparing additional limitations that would help curb the disease – and also risk the economic recovery. 

While the increase in Europe's spread of the disease is weighing on the euro, the increase in the US is boosting the safe-haven dollar. The world's largest economy reported daily records of above 80,000 cases, pushing its seven-day moving average higher. 

The disease is also spreading in the White House, where several aides to Vice-President Marc Short have come down with the virus. Moreover, hospitals in Utah are preparing to ration admission to Intensive Care Units, in a grim reminder of the first wave in New York. 

Mortalities are on the rise on both sides of the Atlantic:

Source: FT

Another factor for the flight to the safe-haven dollar is the probable breakdown of fiscal stimulus talks. House Speaker Nancy Pelosi and White House Chief of Staff Mark Meadows were busy pointing the figure at each other over the weekend.

With so little time until the elections, a deal always had little chances – but now markets seem to come to grips with it. Moreover, Senate Republicans are focused on confirming Amy Coney Barret to the Supreme Court and remain skeptical about the need for further stimulus. 

The upcoming US elections are also a cause for uncertainty and dollar demand. Challenger Joe Biden continues leading President Donald Trump, and Democrats have a chance of flipping the Senate. Investors favor such a "blue wave" that would enable passing a generous stimulus package.

However, there have been few opinion polls since the last presidential debate, and speculation remains rife. See: US Elections: Debates matter but how much?

Dems have a 73% chance of winning the upper chamber according to Nate Silver's FiveThirtyEight.

Source: FiveThirtyEight 

It is essential to note that nearly 60 million Americans have already cast their ballots – including Trump – and that amounts to around 43% of the total vote count in 2016. Turnout is set to break records in 2020. 

All in all, this trifecta of worries is weighing on EUR/USD. 

The economic calendar features the German IFO Business Climate for October, which may edge lower due to the pandemic's winter wave. Later in the day, US New Home Sales for September are projected to show annualized sales holding above one million. 

EUR/USD Technical Analysis

Euro/dollar set a lower high and momentum on the four-hour chart has turned negative – both bearish signs. However, the currency pair is holding above the 50, 100, and 200 Simple Moving Averages. 

Critical support awaits at 1.1785, which was a low point on Friday and also where the 50 SMA hits the price. Further down, 1.1760 was a support line on the way up and it is followed by 1.1720 and 1.1685. 

EUR/USD is struggling with 1.1840, which provides support last week. The next level to watch on the upside is 1.1860, the daily high, followed by 1.1880, October's peak. 

See 2020 Elections: Seven reasons why this is not 2016, time to focus on the Senate

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD recovers above 0.6250 amid China's stimulus-led optimism

AUD/USD recovers above 0.6250 amid China's stimulus-led optimism

AUD/USD is recovering ground above 0.6250 early Monday, moving away from multi-month lows of 0.6199 set last week. The pair finds support from renewed optimism linked to reports surrounding more Chinese stimulus even as the US Dollar rebounds at the start of the Christmas week. 

AUD/USD News
USD/JPY: Buyers stay directed toward 157.00

USD/JPY: Buyers stay directed toward 157.00

USD/JPY holds firm above mid-156.00s at the start of a new week on Monday. Doubts over when the BoJ could hike rates again and a positive risk tone undermine the safe-haven Japanese Yen while the US Dollar regains its footing after Friday's profit-taking slide. 

USD/JPY News
Gold downside bias remains intact while below $2,645

Gold downside bias remains intact while below $2,645

Gold price is looking to extend its recovery from monthly lows into a third day on Monday as buyers hold their grip above the $2,600 mark. However, the further upside appears elusive amid a broad US Dollar bounce and a pause in the decline of US Treasury bond yields.  

Gold News
The US Dollar ends the year on a strong note

The US Dollar ends the year on a strong note

The US Dollar ends the year on a strong note, hitting two-year highs at 108.45. The Fed expects a 50-point rate cut for the full year 2025 versus 4 cuts one quarter earlier, citing higher inflation forecasts and a stubbornly strong labour market. 

Read more
Bank of England stays on hold, but a dovish front is building

Bank of England stays on hold, but a dovish front is building

Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Majors

Cryptocurrencies

Signatures