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EURUSD: price action reverts to correction after overnight drop

The EURUSD pair traded in negative territory on Tuesday, October 6. By the end of the session, the euro slid 0.4% against the US dollar to 1.1733. The market experienced heightened volatility throughout the day. The demand for risk assets persisted amid the return of US President Donald Trump to the White House, as well as expectations that the coronavirus stimulus bill might still be passed.

During the European session, the pair shot up to 1.1808, but later dipped to 1.1732 (-76 pps). The main reason for the sharp appreciation of the dollar was Trump's decision to discontinue stimulus talks with the Democrats before the election. He does not want the money to go towards poorly governed states under Democratic rule. Republicans put forward a $1.6 trln bill to the Democrats. The latter, in turn, insisted on allocating funds in the range of $ 2.2-2.6 trln.

Democratic presidential candidate Joseph Biden equated Donald Trump's decision with a betrayal of the American people.

Todays macro agenda (GMT+3)

10:30 UK: Halifax house price index (September)

15:10 ECB Lagarde speech

17:00 Canada: Ivey PMI (September)

17:30 US: EIA weekly petroleum status report

21:00 US: FOMC minutes 

22:00 US: consumer credit change (August)

EURUSD-071020

Current outlook

The key pair fell to 1.1725 in Asian trading. At the time of writing, the euro was trading at 1.1753. The decline stopped at the 67th degree of the Gann angle and the trend line, which acted as resistance on October 5. It will take more than 10 hours for the market to recover. Volatility in dollar pairs could be stoked by Christine Lagarde’s speech, and also by the FOMC minutes.

Market participants await the opening of the European session. In Asia, almost all major currencies are trading in positive territory, except for the yen. US index futures point to an increase in the range of 0.36-0.39%. Notably, risk-on sentiment has again taken hold of the market, while Trump and his decision faded into the background. In the upshot, we see every reason for the single currency to retrace to 1.1760.

The 45th degree goes through the 1.1780 level. This level should be kept in mind in case the single currency strengthens against the British pound. Support is the range of 1.1720-1.1725. If it does not hold, EURUSD will head towards 1.1690.

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