Traders are clearly dumbfounded by the preliminary results of the US elections. The clear preponderance of Donald Trump over his direct rival, Joe Biden, was not part of the plans of the euro bulls, especially since they were building up long positions all day yesterday on the hopes of resuming the bull market after the elections.
On the preliminary results, Donald Trump holds the advantage, having won in the following states:
1. Kentucky
2. West Virginia
3. South Carolina
4. Alabama
5. Mississippi
6. Oklahoma
7. Tennessee
8. Arkansas
9. Indiana
10. North Dakota
11. Nebraska
12. Wyoming
13. Louisiana
14. South Dakota
15. Kansas
16. Missouri
17. Idaho
18. Utah
Meanwhile, his opponent, Joe Biden, won in these states.
1. New Hampshire
2. Oregon
3. Washington
4. California
5. Columbia
6. Colorado
7. New Mexico
8. New York
9. Vermont
10. Virginia
11. Connecticut
12. Delaware
13. Illinois
14. Massachusetts
15. Maryland
16. New Jersey
As repeatedly mentioned, pressure on the US dollar will resume only in the event of Biden's victory in the presidential elections. And if the Democratic Party wins as well, that is, gain a majority in both houses of the Congress, the US dollar is very likely to drop significantly, mainly because there will be a rather high chance that the next US stimulus package would amount to $ 2-2.5 trillion. However, the real worst scenario is Biden's victory but loss of control in one of the chambers of the US Congress.
Meanwhile, if Donald Trump wins, the markets will be pretty calm about it, but for more serious effect, it would be nice if his Republican Party wins a majority in the two houses of the Congress. In this case, the Democrats will be completely crushed, which will lead to an even greater strengthening of the US dollar against risky assets, especially in the context of recent lockdowns in many European countries.
Economists already predict that these lockdowns will cause a sharp contraction in the German GDP for the 4th quarter, from 0.5% to 1.0%.
As for activity in the euro area's services sector, a significant decline is also expected, and this will add more pressure to the European currency. However, this short-term effect may be limited by the results of the US elections.
The labor markets are also expected to show weakness again this quarter, the main reasons for which are the sharp increase of COVID-19 incidence and its inevitable negative economic consequences. Overall, unemployment in Germany could jump to 6.5% in 2021, against 6% in 2020. This is expected to happen after the cancellation of many government assistance programs, which are currently operating to support the population and business sector in the context of the coronavirus pandemic.
Another factor that could put pressure on the euro is the upcoming decision of the European Central Bank this December, which is widely expected to bring about significant changes in the PEPP assistance program and TLTRO operations. The Emergency Asset Purchase Program (PEPP) will become more ambitious and longer lasting, while conditions for long-term financing transactions (TLTRO) will become even more attractive. Aside from that, the ECB may also discuss the possibility of lowering interest rates early next year.
Against these backgrounds, the technical picture of the EUR / USD pair indicates that the bulls will continue to try to get above the resistance level of 1.1700, as such will make it easier for the quote to reach the highs 1.1765 and 1.1865. But, a decline to the lows 1.1540 and 1.1480 will occur if the pair moves below the support level of 1.1605.
