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The euro advanced against the US dollar to almost weekly highs amid renewed hopes that the US lawmakers will finally agree on a new stimulus package for the US economy. At the same time, fears about the ongoing COVID-19 pandemic and political uncertainty in the United States are holding back the EUR/ USD rise.
Two weeks are left before the US presidential election, and US President Donald Trump is urging the Congress to reach a deal. A preliminary agreement on new stimulus measures could be a winning card in his campaign.
At the same time, most experts think that a decision on the next stimulus package will be made only after the election.
"President Trump would love to have a stimulus package before the election. But there's no political upside for Pelosi to sign anything before the election," Michael Mullaney from Boston Partners said.
What will happen to the stimulus package after November 3?
Two options are possible:
1. Democrats and Republicans will never agree over it. This will definitely hurt US economic growth, leading to a decline in risk appetite and a stronger US dollar this year.
2. Democrats will realize that it is impossible go on without the support of the national economy, and will urgently find a compromise with Republicans by adopting a small emergency aid package of $0.5 trillion, for example. Perhaps this amount will be enough to support the economy until the end of the year. Then, the EUR/USD pair will continue to trade in the current range.
In this case, however, Democrats will have to admit that they did not want to compromise with Republicans solely for political reasons, thus threatening the country's economy. This will definitely hurt their political image.
However, at the moment, the tactics used by Democrats are bringing them political advantages. Analysts say that one of the reasons for the decline in Trump's rating is the inability of the White House to adopt at least some kind of aid package for the American economy in recent months.
The euro was one of the strongest currencies on Monday. But the news from the EU is discouraging. France, Italy, and Spain are facing a record surge in the number of new COVID-19 cases.
ECB President Christine Lagarde expressed concern about the slowdown in the European economy amid the second wave of the pandemic. Next week, the regulator will announce another decision on its monetary policy. While no new measures are expected from the ECB at the moment, COVID-19 statistics and new lockdowns could stir the regulator into action.
"Yesterday, the EUR/USD pair jumped to 1.1793 and closed the day at 1.1766. The bullish momentum has slightly increased. The pair may test the level of 1.1805 from the current levels, but then a more stable pullback is expected. The next resistance is located at 1.1830, while the support is found at 1.1730 and 1.1710. For some time, the pair can trade in the range of 1.1690-1.1830," specialists at UOB noted.
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