EUR/USD tests 1.0900 resistance as DXY weakens ahead of election
Euro strengthens amid positive economic data, testing key resistance against US dollar
EUR/USD has been on a recovery move since late October, staging an impressive rally of over 1% from the psychological floor of 1.0800 to 1.0900.
Late last week, an attempt to breach 1.0900 was thwarted, as downward pressure from the 20- and 50-day EMAs pushed EUR/USD back against bullish momentum. Today, however, buyers are testing this level with renewed energy, likely fueled by the continued decline of the US Dollar Index, which is now flirting with the critical 103.500 support level. The inverse relationship between EUR/USD and the DXY is hard to ignore, as a weakening dollar often gives the euro room to climb.
US election adds uncertainty to EUR/USD outlook
Now, consider the mixed sentiment surrounding the upcoming US presidential election. Polls suggest an evenly matched race between former President Donald Trump and current Vice President Kamala Harris, and traders are weighing the implications
A Trump victory could strengthen the US dollar, due to expectations of economic policies that will boost inflation and force the Fed to maintain a restrictive stance. On the flip side, a Harris win could favor risk-sensitive currencies, including the euro, as traders anticipate continuity in current policies.
Also in play is the euro’s underlying strength. Economic data out of the Eurozone surprised to the upside in October. Eurostat reported a stronger-than-expected Q3 GDP growth, and inflation in October rose to 2%, dampening the odds of an aggressive 50 bps rate cut by the ECB in December. Better-than-expected manufacturing PMI readings from Germany and the wider Eurozone only add to the mix, painting a rosier picture for the euro.
For now, all eyes are on the upcoming election. As EUR/USD retest 1.0900, we could see a retreat. But if the bulls manage to push higher, a new upward leg may be in the making.
The EUR/USD pair breaks out of a week-long trading range. Stronger German CPI data fueled expectations of continued ECB hawkishness.
