EUR / USD: Interim congressional elections will determine the direction of the US dollar
The US dollar strengthened its position against the euro and the British pound yesterday, but the uncertainty in the elections to the US Congress did not allow for the formation of a larger upward wave. Let me remind you that today, there will be midterm elections to the US Congress, which may in the short term affect the US dollar rate.
US congressional elections
If the Republican Party succeeds in retaining the majority in the House of Representatives, this will lead to the strengthening of the US dollar and its return to the region of last month’s highs paired with the European currency.
If the situation changes and the majority in the House of Representatives is received by the Democratic Party, the dollar may decline substantially, although with the increase in interest rates in the United States, the decline will not be continuous. It should also be remembered that tomorrow, the meeting of the Federal Reserve System will begin, the results of which will be announced this Thursday. However, given the fact that at this meeting on monetary policy, no one plans to raise interest rates, its results are unlikely to significantly affect the US dollar.
As for the data that came out yesterday in the afternoon, it should be noted that the indicator of activity in the US service sector rose in October. It happened due to the good growth of new orders. According to Markit, the final PMI Purchasing Managers Index for the US service sector rose to 54.8 points in October from 53.5 points in September. Let me remind you that the index values above 50 indicate an increase in activity.
The PMI Purchasing Managers Index for the non-manufacturing sector of the United States slowed down a bit, but turned out to be better than economists’ forecasts.
According to the ISM Institute for Supply Management, the purchasing managers index for the non-production sector in October dropped to 60.3 points from 61.6 points in September, while economists had forecast that in October the index would be 59.5 points.
An excellent indicator of growth in employment trends in October indicates a good state of the labor market. According to the Conference Board report, the employment trends index in October of this year rose to 110.72 points against the September value of 110.39 points.
Yesterday, the US administration imposed a series of sanctions against Iran. It was known about them for a long time, however, the sanctions began to operate from yesterday. As noted in the report, the ban concerns the import of oil from Iran, and also applies to more than 700 Iranian banks, companies, and individuals. As the Minister of Finance of the USA Mnuchin noted, the sanctions will be in effect until the Iranian authorities change their destabilizing policies.
As for the technical picture of the EUR / USD currency pair, it remained unchanged. Yesterday’s attempts of both “drag and drop” to both buyers and sellers did not lead to success, and the market continued to be in the side channel. It is likely that market participants are waiting for the fundamental signals, which I mentioned above. The breakthrough of resistance 1.1420 will strengthen the presence of euro buyers, which will lead to the resumption of an uptrend with the updating of resistance levels of 1.1450 and 1.1480. In the case of a decline below the support level of 1.1390, the pressure on the euro may increase significantly, which will lead to a larger downward trend with a return to the lows of last month in the area of 1.1300.
The British pound fell yesterday after the data on the service sector, but buyers quickly returned to the market, while remaining optimistic about the conclusion of the Brexit transaction.
According to Markit, the PMI Purchasing Managers Index for the UK services sector in October this year dropped to 52.2 points from 53.9 points in September. The company is concerned about a moderate increase in business activity in October, as new orders rose at the slowest pace since July 2016, despite the fact of rising production costs.