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The political drama unfolding in Washington continues to put pressure on the euro-dollar pair. Although the likelihood of the US president's resignation is actually minimal, the market is still filled with emotions and the dollar has gained a temporary status of a protective instrument. In conditions of increased uncertainty, the greenback is in high demand since it brings greater profitability in comparison with other -more traditional "safe haven" currencies (such as the yen and the Swiss franc).

According to the vast majority of experts, the dollar is actively growing due to one fundamental factor: the impeachment procedure. This was launched in the US Congress for the first time since 1998 that "redrawn" the fundamental picture for the EUR/USD pair. Although as early as last week, the dollar felt rather uncertain which kept the bulls near the borders of the 11th figure. However, journalists continue to escalate the situation regarding Trump's possible resignation and loud statements by representatives of the Democratic Party only fuel interest in this topic. The dollar index against this background updates local highs, stealing up to the area of 99 points. And yet, despite the serious intentions of the Democrats, the general situation has the properties of a soap bubble, which may burst already in the foreseeable future.

Exchange Rates 27.09.2019 analysis

Many of those who prophesied Trump impeachment is silent for some reason about one obvious fact, which in general lies on the surface. To complete the procedure, the Democrats need to enlist the support of a significant number of Republicans, while for the most part, the same party members of the American president supported their leader in this scandal. In other words, the impeachment procedure is initially doomed to failure, therefore, all current events should be viewed through the prism of the election game of politicians. But since the impeachment procedure itself is divided into several stages, an illusion is created that Trump's opponents triumphantly implement their scenario. Democrats successfully convert this fact into their political PR, while simultaneously exerting pressure on the markets.

Here, it is worthwhile to dwell in more detail on the impeachment procedure. This procedure can be initiated by any member of the Lower House of Congress (House of Representatives), then a commission is created on the basis of the legal committee (or on the basis of several), which forms a kind of "indictment" against the head of state. The next stage is the Senate. But in order to support the prosecution and refer it to senators for approval, 218 votes of the members of the Lower House are needed. According to various sources, the Democrats today have been able to enlist the support of 210-215 deputies. Moreover, as the impeachment initiators themselves admit, they do not know whether everyone who previously spoke out for the investigation of the case will vote for impeachment as a result.

But even if the Democrats consolidate their forces and hand over the indictment to the Senate, they will have to enlist the support of the Republicans in order to complete what has been started and to implement the procedure for removing the president from office. Indeed, to make a decision on impeachment, two-thirds of the support from senators is needed. And today, the majority in the Senate are representatives of the Republican Party. Will they give their opponents such a generous political gift on the eve of the presidential election?

Moreover, the most influential representatives of the Republicans have already managed to criticize the Democrats' initiative. They stated that they had made a rash and hasty decision by starting the impeachment process without decrypting the telephone conversation between Trump and Zelensky. Now, according to Republicans, their opponents are forced to do a "good face on a bad game," insisting on continuing the investigation. Although, according to Trump supporters, the published transcript is clearly "not drawn" to impeachment. The US president did not blackmail his Ukrainian counterpart, and did not set the terms "service for service". He veiled and impartially approached the situation with Biden, complaining only that the previous Ukrainian authorities "hushed up" the criminal case against his son.

In other words, at the moment, the probability of a real resignation of the US president as a result of the scandal heated by the Democrats is minimal. Of course, if during the investigation other facts come to light that indicates Trump's use of his power for personal purposes, the situation may change. But if we proceed only from the published facts, then the chances for the victory of the Democrats are very, very illusive.

Exchange Rates 27.09.2019 analysis

In general, according to some political scientists, Trump's opponents only implement political technology in pursuit of rating points. And here, it should be noted that the Democrats "have no way back". After a series of losses in such situations, they are now forced to insist on the violation of the oath by the American president from abuse of power to treason, accusing him of all mortal sins. But political rhetoric is one thing, and a legally substantiated charge is another thing. The quid pro quo format (service for service) was not spoken out by the presidents. According to many experts, this fact "puts an end to" the prospects of impeachment, without even taking into account the fact that the Upper House of Congress is controlled by Republicans.

Thus, the topic of impeachment will still excite traders for some time but this fundamental factor cannot be classified as "reliable". Next week, when the next round of negotiations between Washington and Beijing will begin, investors will switch to the topic of the prospects of a trade war. The behavior of the dollar will depend on the outcome of this dialogue.

Yesterday, the EUR/USD bears were able to push the support level of 1.0950 (the lower line of the Bollinger Bands indicator on the daily chart), approaching the base of the ninth figure. However, the pair may already return to the usual range of 1.0950-1.1040 next week in anticipation of the outcome of the fateful negotiations. Therefore, short positions now look risky despite the general strengthening of the dollar throughout the market. As a rule, political factors influence the dynamics of currencies quite strongly but these factors are of a "short-term nature." It is likely that the topic of impeachment will exhaust itself in early October.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Irina Manzenko,
Analytical expert
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