The EUR/USD pair has edged above 1.0900, buoyed by a weaker U.S. Dollar and a wave of pre-election volatility. As the U.S. presidential election approaches, the currency markets are fluctuating, with the Euro gaining ground amid uncertainty about potential policy shifts under either candidate. ING’s FX analyst Francesco Pesole noted that “pre-election volatility is dominating,” underscoring the limited impact of this week’s Eurozone calendar compared to the profound influence of U.S. election outcomes.
A Boost from Dollar Weakness
The recent uptick in EUR/USD followed a rocky trading session on Friday, spurred by the latest U.S. payroll data. A weaker Dollar has supported the Euro’s climb, reflecting traders’ cautious outlook on the U.S. economy and monetary policy prospects. Pesole suggests that the Dollar’s slip is not just a reflection of domestic data but a broader reaction to election implications, with markets bracing for potential shifts in trade and fiscal policy. This has fostered a bullish sentiment around the Euro, allowing it to breach the 1.0900 mark briefly.
How the U.S. Election is Shaping EUR/USD Sentiment
The U.S. election is expected to have ripple effects on the Euro, driven by expectations of a volatile Dollar response. A Trump victory, according to analysts, could increase the likelihood of protectionist policies that may encourage the European Central Bank (ECB) to consider a more accommodative stance. Currently, markets are factoring in a 29-basis-point (bp) rate cut for December, with an additional 30 bp cut in January.
“A Trump win might push the ECB to frontload easing, given the heightened risk of protectionism,” Pesole adds, signaling that rate cuts could come sooner if political risks rise. This scenario suggests the ECB could adopt a more aggressive approach to keep the Euro competitive, especially if U.S. trade policies turn inward.
Also read : Market Reactions To US Elections- How Political Odds Affect GBP/USD Movements?
EUR/USD Technical Analysis and Key Levels
While EUR/USD has reached above 1.0900, analysts note that the pair may face resistance at 1.0940, with support resting around the 1.0830 level. Despite Dollar weakness, the wide interest rate differential indicates that EUR/USD might be overvalued in the short term, suggesting a pullback could occur unless further catalysts materialize.
As the U.S. election unfolds, currency markets are set to remain unpredictable. Traders should watch EUR/USD closely, particularly around key resistance and support levels, as broader political developments could significantly impact market sentiment.
