EUR/USD: Why Any Bearish Takeover Is Set To Be Temporary, Levels To Watch

  • EUR/USD has been edging lower in reaction to stimulus, shrugging off Capitol storming. 
  • US data and the political fallout from the riots will likely shape trading before Fed hopes could boost the pair.
  • Thursday’s four-hour chart is showing bulls hold an advantage. 

The mob supporting President Donald Trump has failed in its coup attempt – and EUR/USD will likely fall short of ending the broad rally. The world has been digesting the extraordinary events on Capitol Hill – a well-organized group incited by the losing incumbent taking over parliament violently, and luckily failing to overturn the results. Congress certified Joe Biden as the winner early on Thursday (FXE, UUP).

Nevertheless, scenes reminiscent of the third world did little to sway markets as investors have seen the dramatic scenes as having no term impact on economics. The short physical capture of Congress has no impact – while the orderly takeover of the Senate by Democrats has a positive one.

Biden’s party secured effective control of the upper chamber after both Raphael Warnock and Jon Ossoff won their runoff races in Georgia. That would enable Democrats to pass another generous stimulus package – yet probably insufficient to make market-unfriendly reforms. Dems will only have a slim 51:50 majority.

While prospects of further government spending bolstered markets, the dollar reaction was mixed. On one hand, the safe-haven greenback suffered a sell-off – but that was quickly replaced by flows stemming from rising bond yields. Expectations of massive bond issuance – to fund new expenditure, prompted investors to sell Treasuries. In turn, higher returns on US debt boosted the currency.

Nevertheless, any increase in the dollar may be temporary. It is essential to remember that the Federal Reserve is ready to buy more bonds if necessary. The Fed’s meeting minutes from the latest meeting showed some on the board are already eyeing additional monetary stimulus.

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