EUR/USD: Rallies on Greenback Weakness on U.S. Election Day

The EUR/USD pair capitalized on a broad-based decline in the U.S. dollar as markets prepared for the initial results of the U.S. presidential election that began on Tuesday. The euro gained two-thirds of a percentage point, breaking above the 1.0900 level as investors anticipated favorable market conditions during the election cycle that will determine the U.S. president for the next four years.

Aside from a scheduled appearance by European Central Bank President Christine Lagarde, EU market data is relatively limited this week. Retail sales figures for the entire region are set for release on Thursday, the EU leaders’ summit concludes on Friday, and Lagarde’s appearance is scheduled for Saturday, when markets will be closed.

Election forecasts indicate a close race for the White House, with former President Donald Trump and current Vice President Kamala Harris polling within a 5% margin, depending on the results of cited polls. Equity investors, particularly those focused on the technology sector, appear to view the former president as a favorable candidate for the stock market, an uncommon choice given his advocacy for tariffs reminiscent of the Smoot-Hawley tariffs from U.S. history. Trump has intermittently suggested imposing high tariffs on all imported goods, a policy seen as inflationary.

The Federal Reserve’s next rate decision is also imminent this week. Fed Chairman Jerome Powell is expected to announce a quarter-point rate cut on Thursday, reducing the federal funds rate by 25 basis points to 4.75%. The fed funds rate had peaked at 5.5% in July 2023, and investors have been pressing for a return to a lower-rate environment, familiar since the U.S. interest rate bottomed out near 0% in early 2009.

The University of Michigan consumer confidence index, scheduled for release on Friday, is expected to reach a six-month high, with November’s reading forecasted to rise to 71.0 from last month’s 70.5.

EUR/USD Daily Technical Analysis for November 6th:

The EUR/USD is currently holding above the 1.0900 level after a recent decline, with bullish momentum now testing the 50-day EMA at 1.0937. This area aligns with the pair’s current range, suggesting that the zone between 1.0900 and 1.0937 could act as a short-term resistance. The 200-day EMA at 1.0902 provided initial support, enabling a rebound from the early October lows, indicating a possible shift toward a bullish sentiment.

The MACD indicator on the daily chart is also showing signs of recovery, with the MACD line nearing the signal line and the histogram turning positive. This shift hints at a potential build-up in bullish momentum, though the crossover has yet to occur definitively. A clear MACD crossover, if it materializes, could support additional short-term gains. For now, traders should exercise caution as the pair approaches a pivotal resistance level, where a rejection from the 50-day EMA might lead to another bearish test.

In the near term, continued buying pressure could push the EUR/USD toward the psychological resistance at 1.1000, with further gains likely if the pair breaks above the 50-day EMA. On the downside, a drop below the 1.0900 level could take the pair back to 1.0850, and potentially to October’s lows near 1.0700. Overall, while the technicals indicate a cautiously bullish outlook, EUR/USD remains at risk of a reversal if it fails to decisively clear the moving averages.