So many factors are affecting the currency markets right now that it can be hard to get your head around them all.
Activity is definitely centered on the US. Last week, we had the US Federal Reserve’s interest rate decision and US Non Farm Payrolls which is still lingering in the minds of traders. The latter jobs data is pointing to a slowdown in the US economy, but it still beat market expectations by a fair margin (260K jobs vs 200K expected).
This week we have US midterm elections, the results of which will help set the fiscal policy direction of the US for the next few years. Markets took their expectations from polling leading up to the voting, and republican ‘red wave’ was expected to materialise, removing the democrat's slim majority in the US House of Representatives and Congress. As of writing, the red wave has turned out to be more of a 'red ripple’, with the elections still in contest.
To cap off these major market events, we have the US inflation data dropping very early Friday morning (UTC +13) and the Michigan Consumer Sentiment Index on Saturday.
So, with all these events swirling around, is it still a good time to buy USD and sell EUR? It might all come down to the inflation report for October coming in much lower than expected causing the pair to make an emphatic break above 1.0100 and dissuading buying sentiment of the USD. The market is expecting a very minor drop in inflation to 8.0% or 8.1% from the current 8.2% reading.
As it stands, the EUR/USD does appear to be temporarily supported from falling too far below parity, but this doesn’t mean that buyers are there to take it higher, especially when we zoom out and consider the longer-term trend of the pair, and the resistance it has recently encountered twice at 1.0100. Further downside might rely on a break below 0.9800 (for a weak signal) and 0.9550 (for a strong signal) moving forward.