Investors usually prefer a legislative impasse to new rules and taxes. Therefore, the red wave expected by the markets during the midterm elections in the United States fueled global risk appetite, contributing to the rise of EURUSD by more than 3% during three trading sessions on Forex. To the disappointment of their fans, the Republicans' victory in the House of Representatives did not turn out to be as enchanting as expected. Yes, it will take a long time before the final results are announced, but it can already be said that the Democrats have not become whipping boys.
Another topic contributing to the strengthening of the euro against the US dollar was the talk about the imminent opening of China. They say that its zero-Covid policy does not bring the desired effect, and it's time to abandon it, even despite the growth of COVID-19 infection to a six-month high. On paper, if this had happened, the acceleration of China's economy would have had a favorable effect on both risky assets and EURUSD. In fact, the opening of China will raise demand and commodity prices, which will further accelerate inflation and force the Fed to act more aggressively. In addition, there is no serious evidence of Beijing's rejection of the zero-Covid policy.
Thus, the topics of midterm elections in the US and China will soon give way to the Fed's monetary policy. Moreover, the release of data on US inflation is just around the corner. In most cases, in 2022, the dollar reacted to new CPI figures with growth, and, most likely, the same will happen in November. Let no one be confused by Bloomberg experts' forecasts of a slowdown in consumer prices from 8.2% to 7.9% and core inflation from 6.6% to 6.5% YoY. The Fed intends to pay more attention to monthly indicators due to the absence of the base effect in them, which is typical for annual ones.
EURUSD Reaction to US Inflation Data Releases
The fall of EURUSD risks becoming no less serious than the rise of the pair in the last few days since, according to positioning data from Nordea, non-profit traders have been sitting in record long positions on the euro since the autumn of 2021.
Dynamics of EURUSD and speculative euro positions
Despite the recent success of the "bulls" on the main currency pair, you need to understand that sooner or later, the US dollar will return to the game. The Fed has not yet done its job—it has not brought to its knees the highest inflation in several decades. What kind of weakening of the US currency can we talk about? The current pullback of EURUSD is more like throwing out ballast—the exit of "bears" from the market who are not sure about the future. As a result, it becomes possible to sell euros at attractive prices.
Technically, a double top pattern has formed on the EURUSD daily chart. The fall of the pair has either already begun or will begin on the rebound from the resistances at 1.012 and 1.015. If the market breaks through to them, a Three-Indian reversal model will form as part of a correction to a downward trend. Returning to the second Indian at 1.009 is a reason to sell the euro against the US dollar.
