EUR/USD: Buy the Biden rumor, sell the fact? Overbought conditions, covid, may weigh

November 9, 2020 Off By admin-445
  • EUR/USD has been extending its gains after Biden was called the next President of the US.
  • Further responses to the elections, central bankers, and covid figures are eyed. 
  • Monday’s four-hour chart is pointing to overbought conditions.
  • Democratic candidate Joe Biden has been elected the 46th President of the United States – the news burst on Saturday when markets were closed. President Donald Trump is refusing to concede and has repeated unsubstantiated claims of fraud, yet even friendly Fox News has labeled Biden as President-Elect.
    The announcement was highly anticipated late last week and investors were already pricing a decisive result rather than a contested election. While stocks continue higher and the safe-haven dollar is falling, there is room for a “buy the rumor, sell the fact” response.
    There are several post-elections developments to watch:
    1) Final counting from states: The obsession with every data dump from swing states is diminishing, but the drip could still have an impact. If Biden enlarges his lead, it would raise pressure on reluctant Republicans to acknowledge the result and bring the elections to a happy end. If the gap in Pennsylvania and Arizona tighten, it could cause uncertainty.
    2) Biden nominations: The former Vice-President is working on his transition and appointments to key posts is closely watched. He will have to strike a balance between the left-wing of the party and the centrists. Investors will be tuned to who would be the next Secretary of the Treasury. Lael Brainard, a Governor at the Federal Reserve, is the leading candidate and would soothe markets. So far, Biden has focused on tackling coronavirus as his first priority.
    3) Senate races: Contrary to the impression on election night, Democrats still have a chance to gain control of the upper chamber. Two runoffs in Georgia due on January 5 could result in a 50-50 split in the Senate – which Vice-President-Elect Kamala Harris would be able to break. Opinion polls toward the two races in the southern state may begin moving markets. Democratic control of the Senate would enable passing a larger stimulus package.
    Apart from further fallout from the elections, the dollar may move on comments from Loretta Mester, President of the Cleveland branch of the Federal Reserve. She will have the chance to comment on the upbeat Nonfarm Payrolls figures on Friday. The economy gained 638,000 jobs in October, better than estimated.
    , President of the European Central Bank, will be speaking amid rising COVID-19 cases and their economic impact. The second lockdowns are set to have a smaller effect in comparison to the initial ones, at least according to German and French officials.
    US covid cases have been hitting new highs in recent days, yet remain behind the EU:

    With the elections gradually taking less headspace, covid could gain prominence in moving markets.
    All in all, may retreat from the highs. 
    EUR/USD Technical Analysis

    Euro/dollar is tackling an uptrend resistance line that it lost in late October, and may struggle o recapture it. The Relative Strength Index on the four-hour chart is at 70 – indicating overbought conditions.
    Resistance awaits at the round 1.19 level, which was also a peak in September. It is followed by 1.1920, another peak from the same period, and then by 1.1965.
    Some support awaits at 1.1880, which was October’s high. It is followed by 1.1860, a swing high from last week, and then by 1.1840.