EUR/USD Drops to 1.06: Three Key Phases Behind the Sharp Decline and What’s Next

INVESTINGEUR/USD Drops to 1.06: Three Key Phases Behind the Sharp Decline and What’s Next

The EURUSD rate quickly dropped from near 1.12 to 1.06 in just under a month and a half. This strong downward impulse caused the increases that lasted from mid-April to the end of September to be fully reduced. Three phases can be identified as responsible for this movement.

The first of these was the first three weeks of October, when the dollar dynamically gained against other G10 currencies on speculation that Donald Trump could win the autumn elections. The USD value increase was about 3 percent. At this time, the dollar may also have had an upper hand, as there was growing belief that the real US economy was doing quite well. Then the situation somewhat reversed. The euro started to catch up. The first PMI estimate for the euro area published during this period was in line with expectations. At the same time, the US dollar was unable to strengthen as much because the market began to fear that Donald Trump’s victory might not be as certain as previously thought. The final stage is the period from election night when the USD gained 1.5 percent against other G10 currencies. At the same time, the common currency was weaker, which compounded the decline of the main currency pair.

As I have mentioned, besides the robust USD, we have a weak euro. The market sees that the real economy of the old continent is export-oriented, which means it will probably be under pressure if the president-elect implements his trade plans.

Before the elections, it was not obvious how clear the Republicans’ victory would be. Usually, there was talk of the battle being evenly matched, particularly in relation to Congress. However, it turned out that the politicians of this party were victorious, which now means that Trump will have more leeway. Today, Reuters reported that the Republicans are missing two seats to also gain a majority in the lower house.

The euro-dollar is currently on technical support, which is due to the low established in mid-April. Today’s daily candle is so far increase and characterized by quite a long “lower shadow,” which convinces us that the time has come for an upward correction. This does not mean that the main currency pair will not yet go lower, precisely around 1.0450 – the minimum of October 2023.

Author: Łukasz Zembik, Oanda TMS Brokers.

Source: https://managerplus.pl/eurusd-przy-106-ale-10450-jest-na-wyciagniecie-reki-96801

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