EUR/USD surges as US Dollar tumbles ahead of US election day, Fed meeting

• EUR/USD climbs to near 1.0900 as the US Dollar faces intense selling pressure ahead of the  US presidential election and the Fed’s policy announcement.
• The latest polls have shown Harris having a slight advantage over Trump.
• The Fed is expected to cut interest rates again on Thursday, but at a slower pace than the 50 bps trim it delivered in September.

EUR/USD jumps around the key resistance of 1.0900 in Monday’s European session. The major currency pair surges at the US Dollar’s (USD) expense amid increasing uncertainty ahead of the United States (US) presidential election on Tuesday and the Federal Reserve’s (Fed) monetary policy meeting on Thursday.

The US Dollar has started the week on a bearish note, with the US Dollar Index (DXY) declining below 103.70 as market participants expect a neck-to-neck competition between former President Donald Trump and current Vice President Kamala Harris. 

The sharp sell-off in the US Dollar came after the release of the Des Moines Register/Mediacom Iowa Poll, which showed Harris up three points on Trump in the state, Reuters reported. The poll’s result marks a turnaround from September in a state that Trump won clearly both in 2016 and 2020.

Traders see a Trump victory as positive for the US Dollar and Treasury yields as he has vowed to raise tariffs on imports and lower taxes, measures that would likely boost inflationary pressures and force the Fed to return to a restrictive policy stance. On the contrary, a Harris win is perceived to be a continuation of current government policies, which traders interpret as beneficial for risk-sensitive currencies.

Meanwhile, the Fed is set to meet on Thursday to decide about interest rates. The meeting, however,  is likely to be overshadowed by the US election outcome and also by the fact that traders have fully priced in a rate reduction of 25 basis points (bps), which would push key borrowing rates lower to 4.50%-4.75%, according to the CME Fedwatch tool. 

Still, investors will pay close attention to the guidance for monetary policy action for the last meeting of this year to be held in December. Markets also expect that the Fed will cut interest rates by 25 basis points (bps) next month.

On the economic data front, investors will focus on the US ISM Services Purchasing Managers’ Index (PMI) data for October, which will be published on Tuesday. The Services PMI is estimated to come in at 53.5, lower than 54.9 in September, suggesting that the index continues to expand but at a slower pace.

Daily digest market movers: EUR/USD gains on multiple tailwinds

• The strength in the EUR/USD pair is also backed by an upbeat Euro (EUR), which performs strongly since last week after a slew of Eurozone economic data diminished expectations of the European Central Bank (ECB) delivering large rate cuts in December.
• The Eurostat reported that the Eurozone economy expanded at a faster-than-expected pace in the third quarter of the year. Upbeat Eurozone Gross Domestic Product (GDP) data forced trades to pare bets supporting a larger-than-usual interest rate cut of 50 bps in the policy meeting next month.
• Meanwhile, inflationary pressures in the Eurozone accelerated to 2% in October, according to the flash estimate, also weighing on the ECB's big rate cut bets.
• In Monday’s session, investors will focus on the final HCOB Manufacturing PMI data for October from Germany and the overall Eurozone as well as the November Sentix Investors Confidence data. Apart from that, the speech from ECB policymaker and President of the Bundesbank Joachin Nagel will be on investors’ radar for fresh guidance on interest rates.

Technical Analysis: EUR/USD sees more upside above 1.0900

EUR/USD strives to extend its upside above the key resistance of 1.0900, which also aligns with the 200-day Exponential Moving Average (EMA). The pair rebounded sharply after gaining a firm footing near the upward-sloping trendline around 1.0750, which is plotted from the April 16 low at around 1.0600.

The 14-day Relative Strength Index (RSI) climbs to near 50.00, suggesting that the bearish momentum is fading.

Looking up, the shared currency pair could rise to near the September 11 low around 1.1000 after breaking above the 200-day EMA around 1.0900. On the downside, the October 23 low of 1.0760 will be the key support area for the Euro bulls.