The euro strengthened against the US dollar following the results of the US midterm elections. The Democrats secured majorities in both the House of Representatives and the Senate. The new Congress will not convene until early January, so the practical implications will not become apparent immediately. Nevertheless, the market reacted straight away, as the balance of power in Washington has changed.
Put simply, the Democrats will now be able to block Trump's legislation, but they will not be able to pass their own bills without the president's signature. Overriding a presidential veto requires a two-thirds majority in both chambers, which the Democrats do not have. This limits the administration's domestic policy options and, in this assessment, is precisely why demand for the US dollar has declined. The euro and other currencies that typically strengthen when investor sentiment is calm have also benefited.
At the same time, foreign policy remains under Trump's control. He launched the war against Iran without congressional authorization, and the Democrats' new majority is unlikely to influence the course of events quickly. As a result, many expect tensions between the US, Iran, and Israel to escalate further. If geopolitical risks increase, the dollar could recover its losses, as investors buy it as a safe-haven currency. Over the next few days, EUR/USD is likely to depend on the balance between two opposing factors: the political relief following the elections and geopolitical uncertainty.
Today, attention will be focused on eurozone economic data. The final Services Business Activity Index and the Composite PMI will be released. The forecasts are in line with the preliminary estimates, at 51.7 and 51.9, respectively. This means economists do not expect any revisions. Any upward deviation, however, would be viewed by the market as a positive surprise, indicating that the regional economy is more resilient than previously expected. The Composite PMI combines services and manufacturing data and provides a more comprehensive picture of business conditions, which is why it receives particular attention.
The second important release will be the October Consumer Price Index. According to forecasts, headline inflation will accelerate to 4.0% from 3.8%, while core inflation, excluding energy and food, will remain unchanged at 2.5%. The market already expects the ECB to deliver its final rate hike in December, raising the rate to 2.75%. If both business activity and inflation exceed forecasts, these expectations will be reinforced, creating conditions for the euro to extend its gains against the dollar. The US dollar has already weakened following the election results, so a muted market reaction to strong economic data is not expected. The combination of these factors could provide EUR/USD with additional upward momentum through the end of the European trading session.
Momentum
This strategy is based on breakouts. The idea is to wait for the price to move beyond a key level and consolidate above or below it. If the price consolidates above 1.1259, the euro could rise toward 1.1298 and 1.1336. During the night, the price moved slightly above this level twice but failed to hold there. Therefore, a brief test of the level is not sufficient; confirmation through consolidation is required. If the price consolidates below 1.1227, selling pressure on the euro could push it toward 1.1200 and 1.1172. The price is currently closer to the lower level, but it would be premature to draw conclusions before the eurozone data are released, as the move could easily turn out to be a temporary spike.
Mean Reversion
This strategy is based on the expectation that the price will return to its average value after moving too far away from it. The key levels here are 1.1265 and 1.1210. Selling opportunities are considered near the upper level, while buying opportunities are considered near the lower level, with the expectation that the price will retrace toward the middle of the range. The upper level is slightly above the recent high, which the price failed to hold. If the data support further gains, the price could reach this level and stall. Conversely, weaker-than-expected data could bring the price down to the lower level, providing a potential point for the euro to rebound.
