23.10.202015:11 Forex Analysis & Reviews: EUR/USD. PMI Indices, Hitler Factor and Dollar Vulnerability

The euro-dollar pair is again stuck in a flat. The downward impulse organized by the bears of the EUR/USD failed as soon as it started. Despite the general weakness of the euro against the background of the second wave of the coronavirus pandemic, the dollar looks even weaker amid political uncertainty in the US.

The last election debate between Trump and Biden, which took place during the Asian session on Friday, did not help the greenback. The preliminary results of the TV debate left more questions than answers. Therefore, dollar bulls are disoriented, and this fact is reflected in all key dollar pairs. The euro, in turn, received a small, but, importantly, unexpected support from macroeconomic reports. Some PMI indices came out better than expected, surprising traders and experts.

All of America for several weeks has been waiting for the last pre-election debate between the main rivals in the presidential election. Let me remind you that the September TV debate was won by Joe Biden - according to various opinion polls, he looked more convincing and "truthful" for 60-70% of American TV viewers. The results of this battle were reflected in the ratings of the Democrat: Biden increased the gap from Trump to 11%. That is why the final televised debate was so important for the incumbent. If he had failed the verbal confrontation this time too, the Democratic leader would have widened the gap, celebrating an early victory. But the reality turned out to be somewhat different: according to a number of experts, Biden made a serious mistake, which could cost him dearly.

Exchange Rates 23.10.2020 analysis

The fact is that during the debate, Biden mentioned Adolf Hitler. And according to estimates of many viewers (who otherwise support Biden), he did it incorrectly and out of place. So, in disputes with Trump about North Korea, the current US President said that he had good relations with the head of the DPRK Kim Jong-un. To this Biden replied that "... it's like saying that we had a good relationship with Hitler before he started the war in Europe." According to the FOX NEWS television channel (which, however, is close to the Republicans), many viewers criticized the former US vice-president, saying that Washington did not have "good relations" with Hitler on the eve of World War II.

In general, Trump behaved more restrained and more decisive than Biden, so the overall superiority of the latter according to the results of the first polls is small - he was preferred by 53% of respondents. All of this suggests that the incumbent can close the gap in national polls. This scenario is not positive for the dollar. After all, if at the end of the election there is no clear winner, Trump will fight for every vote, appealing the results of the "mail vote" in court. By the way, the market again began to recall the events of 20 years ago, when the confrontation between Bush Jr. and Gore lasted more than a month after the elections (the US Supreme Court put an end to this confrontation). Such prospects put background pressure on the US dollar.

However, the euro, as mentioned above, received little support from macroeconomic statistics. The October PMI indices in leading European countries was released on Friday, which was mostly in the "green zone". The exception was France, where all indicators showed a significant decline.

Germany's index of business activity in the manufacturing sector unexpectedly turned out to be better than expected, rising immediately to 58 points (while the forecast of growth to 56.1 points). The indicator has risen consistently for the sixth consecutive month, reflecting production expansion. The pan-European index of business activity in the manufacturing sector also showed positive dynamics, being in the "green zone".

In other words, despite the coronavirus anti-records, the manufacturing sector remains optimistic. Although, the same cannot be said about the services sector - the PMI indices here were disappointing. But this result was very predictable since it is the service sector that is most vulnerable against the background of tightening quarantine restrictions in European countries.

Exchange Rates 23.10.2020 analysis

Thus, the latest political events in the USA and European macroeconomic reports were able to at least extinguish the downward impulse for the EUR/USD pair. Buyers returned the points they had lost on Thursday, and the dollar once again demonstrated its vulnerability. On the other hand, the EUR/USD bulls still cannot gain a foothold above the 1.1850 resistance level. This requires a news impulse (negative for the dollar), which will allow traders not only to break through the resistance level but also to settle higher, in the range of 1.1850-1.1900.

Until then, longs look risky - especially on the last trading day of the week. But in general, in the medium term, the pair retains its upside potential not only to the borders of the 19th figure but also to the next resistance levels 1.1950 and 1.2000.

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

Irina Manzenko,
Analytical expert
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