EUR/USD: There are several worrying reasons to potentially reverse a break higher and create a fakeout

EUR/USD has been advancing on high hopes for a US fiscal deal after falling by 1.82% in September, confirming its biggest single-month percentage decline since July 2019. A potential deadlock in talks, fears of a contested election and rising US cases may come to haunt the pair, FXStreet’s analyst Yohay Elam briefs.

Key quotes

“One last chance – US Treasury Secretary Steven Mnuchin has given himself and House Speaker Nancy Pelosi another go at reaching a deal on a new relief package, and both are reporting progress. Optimism from Capitol Hill is boosting markets and pushing the safe-haven dollar lower. Investors are content with President Donald Trump’s signing of a stopgap measure to prevent a government shutdown. A potential breakdown of talks could bring stocks down and the dollar back up.”

“Another risk comes from Trump – the president refused to commit to accepting the election results in his presidential debate with rival Joe Biden. Opinion polls following the chaotic clash show the challenger may strengthen his lead in the polls. While markets prefer certainty – a clear winner – they are still concerned that the president would refuse to step down in an extreme scenario.”

“A third factor to consider is the ongoing increase in European COVID-19 cases. While deaths from the disease are still low in comparison to the US, fears of a devastating winter may weigh on the euro.”

“In the immediate term, investors will be watching data. ADP’s jobs report showed an increase of 749,000 private-sector positions, better than had been expected. Another hint toward Friday’s Non-Farm Payrolls comes from the ISM Manufacturing Purchasing Managers’ Index. While the headline is projected to edge higher, hiring is forecast to remain depressed in America’s industrial sector.”

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