02.10.202013:35 Forex Analysis & Reviews: Euro follows fashion

With about a month left before the US presidential election, it's no surprise that financial markets are getting deeper into politics. The EUR/USD pair did not react much to statistics on American business activity, applications for unemployment benefits, and income-expenditure of the population, preferring to closely monitor the twists and turns of political events. The debate between Donald Trump and Joe Biden did not reveal a winner.

Many called the debate the worst in US history and a new day in presidential politics. Opponents interrupted each other and did not skimp on insults. The main achievement of the Democrat is to maintain a high rating after the discussion.

Dynamics of the rating of candidates for the post of President of the United States

Looking at the growing popularity of Joe Biden, it becomes clear that the "bears" in EUR/USD do not want to develop a correction. In 2017-2020, the market has a firm belief that what is good for Donald Trump is good for the US dollar, thus, the Republican's failures are a reason to sell the US currency. Perhaps its main trump card is uncertainty. This includes uncertainty related to the counting of votes. The current owner of the White House does not intend to admit defeat just like that. He is sure to accuse the Democrats of fraud because of the ability to vote by mail.

However, the history of the United States already knows examples when there were problems with the counting of votes. This was the case in 2000 during the Bush and Gore presidential campaign. Then the euro rose against the dollar despite the existing uncertainty.

The reaction of the assets on the problems with counting votes in 2000

If we add to the fact that the "bulls" for EUR/USD should not be afraid of the presidential elections in the States, the confident pace of the German and Chinese economies, we can only wonder why the pair is not in a hurry to restore the upward trend. In my opinion, there are three reasons. ECB, Brexit, and the second wave of COVID-19 in the Old World.

Despite the fact that the EUR/USD quotes have gone from the psychologically important mark of 1.2 by almost three figures down, the European Central Bank continues to express dissatisfaction with the regional currency exchange rate. This is evident both in comments about its significance for monetary policy and in hints about the regulator's willingness to do more than what it has already done. A new feature was the intention of Christine Lagarde and her colleagues to consider following in the footsteps of the Fed. Targeting average inflation is a fashionable thing, and the ECB is clearly following fashion.

In my opinion, the "bears" for EUR/USD should not delude themselves about this. The Fed's transition to a new strategy essentially corrects its past mistake – an early increase in the federal funds rate, while the European Central Bank did not make such a mistake. It has been a long time since it was able to rein in inflation, and the change in wording will not change much.

Thus, both the "bulls" and "bears" on EUR/USD have their trumps, thus, the fate of the pair will depend on how well they are played. A break in the resistance at 1.179-1.18 may be a signal for purchases.

EUR/USD, the daily chart