EUR/USD Tanks on Trump Win, Bounces from 1.0700

EUR/USD Talking Points:

• EUR/USD is working on its largest one-day sell-off since September 22, 2022. Interestingly, that was a few days before the multi-year low was set.
• While volatility enveloped global markets with the US Dollar, US rates and US equities all pushing higher, the reality is that it’s unlikely for all three asset classes to continue with strong gains for an extended period of time.
• In the earlier article looking at macro markets, I shared my expectation for the USD to retain the two-year range that’s been a driving force in USD price action. I expand on that below looking at the largest constituent of DXY in EUR/USD.

There aren’t many macro markets that haven’t seen strong volatility over the past 24 hours, and EUR/USD is no different. The pair is currently working on its largest single day sell-off since September of 2022 which, interestingly, showed just a few days before the pair had bottomed. There’s already been a bit of bounce in the pair from the 1.0700 handle and that’s leading to an extended wick on the daily bar.

EUR/USD Two-Hour Price Chart

As I looked at in yesterday’s webinar ahead of the election, I consider EUR/USD to be one of the more attractive major pairs for scenarios of USD-strength. A large part of that is the fact that, even when the US Dollar was showing weakness in late-Q3 trade, the pair remained in a range formation.

Resistance continued to hold in EUR/USD around the 1.1200 handle, which was a lower-high below last year’s 1.1275 level. But, already, the pair has traversed a large portion of that range while making a fast run at longer-term supports.

Below the 1.0700 level that’s currently helping to bring a short-term bounce, it’s the 1.0611-1.0643 zone that held the lows earlier in the year; and then the 1.0500 level that held the lows last year. That’s what I’m considering as range support in EUR/USD, and that goes along with the range resistance looked at in the article and video earlier today.

EUR/USD Weekly Chart

EUR/USD Strategy

The Fed is widely expected to cut tomorrow and the tone with which Powell talks about that in the press conference will be key. The Fed has been noticeably dovish especially when cutting rates by 50 basis points in September, even with many measures of inflation in the US indicating stall or entrenchment. If Powell does sound a bit more dovish, similar to how Janet Yellen sounded in the wake of Trump’s first victory in 2016 on the back of a Republican supermajority, there could be additional drive for USD-strength and EUR/USD weakness.

But – if Powell sings a similar dovish refrain, there could be motive for profit taking in the sell-off and that can set up an interesting scenario, where traders can then watch prior points of support to see if sellers come into defend lower-high resistance. For that, we’re already near a big spot at 1.0765 which is the level I looked at a couple weeks ago for a bounce. Above that, the 1.0807-1.0811 zone is of interest, followed by a shorter-term spot at 1.0825 and 1.0845. If the bounce does extend, I’d expect a big test at 1.0862-1.0872 which is where the 200-day moving average resides.

EUR/USD Daily Price Chart

--- written by James Stanley, Senior Strategist