FOREX Fundamental analysis for EUR/USD on November 4, 2024
Investors ignored the weak October US employment report, but were alarmed by the uncertainty of pre-election polls. After a weak job growth of 12 thousand and a short-term rise, the EUR/USD pair fell sharply, starting an important trading week with a gap. Kamala Harris, who was considered a loser by many, surprised analysts, and the likelihood of her victory reduced interest in the dollar.
As the election approached, U.S. bond yields and demand for the dollar grew, and by October 29, hedge funds and asset managers had increased their net long positions on the dollar from $8 billion to $17.8 billion. The market, confident of Trump's victory, was disappointed.
ABC News and Ipsos polls showed Kamala Harris with a 49% advantage versus 46% nationally, and a New York Times/Siena poll confirmed her lead in five of the seven key states. The Des Moines Register study came as a surprise: in Iowa, traditionally supportive of Trump. The Democrat was also in the lead here.
The weakening of confidence in Trump's return forced traders to reconsider their positions, which was reflected in the opening of the week with a gap on EUR/USD. A possible Trump presidency, according to many, could strengthen the dollar due to potential protectionism and economic incentives leading to inflationary growth.
In addition, Trump erred in interpreting the employment report as the collapse of the economy due to Harris' policies. Job growth was temporarily limited by hurricanes and strikes, which explains investors' disregard for the report, one of the weakest since 2020.
The Fed's interest rate forecasts remain restrained: derivatives indicate a decrease of 44 bps by the end of 2024, which indicates a likely pause in the cycle of monetary expansion.
The logic of such forecasts is clear: with a strong economy and uncertain inflation. The new White House administration will definitely affect inflation expectations.
Most likely, we are seeing a scenario where Kamala Harris' victory will lead to EUR/USD rising above 1.1, weakening dollar support, and Trump's victory could push the euro to 1.07. Uncertainty is keeping traders out of the game for now.
EUR/USD Technical analysis
Last week, an upward correction to a short-term downward trend developed for EUR/USD. As part of the corrective recovery, the pair reached the resistance area (A) 1.0884 - 1.0873. The zone was held by sellers, which led to a decrease in the asset to the level of 1.0833. However, today the markets opened with a gap, and the price broke through the resistance area (A).
In this regard, EUR/USD may reach the resistance area (B) 1.0946 - 1.0929, the trend boundary. After testing this zone, we will again consider short positions with the first target at 1.0853 and the second at 1.0761