Forex News

• EUR/USD climbs above 1.1200 as US midterm election results weigh on the US Dollar.
• The pair forms a potential double bottom near 1.1100, with buyers testing neckline resistance at 1.1250-1.1270.
• RSI and MACD signal improving momentum, though the longer-term SMAs remain overhead.

EUR/USD attracts fresh buyers on Wednesday as the US midterm election results rattle the US Dollar (USD), helping the Euro (EUR) reclaim 1.1200. The technical picture also improves, suggesting bulls are regaining a foothold after the pair touched 1.1104 last week, its lowest level since May 2025. At the time of writing, EUR/USD trades around 1.1257, up more than 0.50% on the day.

On the daily chart, EUR/USD has formed a potential double bottom near 1.1100, with the latest advance testing the neckline at 1.1250–1.1270. The pair has also climbed above the 21-day Simple Moving Average (SMA) at 1.1196, giving buyers some short-term control, although it remains below the 100-day and 200-day SMAs.

Momentum is improving, with the Relative Strength Index (RSI 14) near 52 and the Moving Average Convergence Divergence (MACD) turning positive and extending above its signal line. These signals support the recovery, but a broader bullish reversal remains unconfirmed while price holds below the longer-term averages.

A sustained break above the neckline would confirm the double-bottom pattern and open the way toward 1.1350, where previous support could now act as resistance. Further hurdles stand at the 100-day SMA at 1.1421 and the 200-day SMA at 1.1548. A break above these averages would weaken the broader bearish outlook.

On the downside, the 1.1200 mark offers initial support alongside the 21-day SMA. A break below this area would weaken the recovery and bring the 1.1100 base back into focus. A sustained move below that base would invalidate the double-bottom setup and leave EUR/USD vulnerable to further losses.

Standard Chartered’s Christopher Graham notes Euro area GDP growth excluding Ireland has slowed steadily since Q4-2025 while inflation continues to rise, increasing stagflation risks though not yet meeting that definition. He highlights higher energy prices and lagged ECB tightening as key headwinds and expects another 25bps hike in December, with inflation starting to fall early next year.

Growth slowdown and inflation dilemma

"Eurostat data released this morning showed euro area headline inflation rising to 4.0% y/y in October, above our expectation of 3.8%. This signals upside risks to the European Central Bank’s (ECB’s) September projection of 3.6% average inflation in Q4."

"Stripping Ireland out, euro area GDP growth was a more modest 0.2%, and, crucially, growth momentum has been falling steadily since Q4-2025."

"The combination of weakening growth momentum (using euro area ex Ireland data) and still-rising inflation creates a growing policy dilemma for the ECB. Inflation dynamics (and the risk of second-round effects) will likely dominate for now, underpinning our expectation of another 25bps hike at the December meeting."

"Stagflation is not our base case; we expect growth to remain positive and inflation to begin falling early next year."

"But the direction of travel is that way, and the forces that could produce stagflation in coming quarters are apparent: higher energy prices that are squeezing real income and weighing on corporate profit margins; ECB monetary tightening operating with lagged effects on household and corporate borrowing costs; and tighter financial conditions weighing on broader activity."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

ING analysts James Knightley, Carsten Brzeski, Padhraic Garvey, Lynn Song and Chris Turner note that the Dollar has softened after the Democratic sweep in US midterms, though losses have been pared with Nasdaq futures stabilizing. They highlight support from a resilient US economy and at least one more Federal Reserve rate hike, but see scope for further Dollar weakness into 2027 if political frictions and a possible government shutdown intensify.

Dollar reacts to Democratic midterm win

"The dollar is softer on the outcome, though it has recovered from its lows seen in early Asia when a sharp fall in Nasdaq futures was warning of a larger re-pricing of the tech story."

"Limiting a larger dollar correction on this news is probably a still-resilient US economy and at least one more rate hike from the Federal Reserve."

"The dollar could see a little more weakness into 2027, however, if an emboldened Democratic Party takes greater issue with Republican policy, including deregulation and the AI build-out."

"And the potential for a prolonged government shutdown in mid-2027 adds to the case for a weaker dollar next summer."

"Overall, we retain a bias towards the 10-year yield heading towards 5.25%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Societe Generale’s Michelle Lam assesses recent Chinese policy moves to support China equities following the latest correction. She highlights expanded use of the SFISF, cheaper and more permanent buyback relending, and informal IPO curbs. The report argues these measures mainly reinforce a policy floor and limit downside, but do little to generate sustained upside for China equities.

Policy support reinforces market floor

"Chinese policymakers have stepped up efforts to stabilise the stock market following the recent correction. Taken together, the latest measures could provide an additional RMB100bn through the Securities, Funds and Insurance Companies Swap Facility (SFISF), alongside potentially RMB200bn or more of additional demand for share-buyback and shareholding-increase loans at a cheaper interest rate."

"The latest measures provide additional liquidity and help prevent a correction from becoming self-reinforcing. However, the experience since these facilities were introduced in late 2024 suggests they have not been very effective. This is perhaps why equity market reaction remains underwhelming."

"Second, liquidity is not the main constraint on Chinese equities. Lower financing costs can make buying shares more attractive, but they cannot fully offset concerns over earnings growth, margin compression, subdued domestic demand and broader macro uncertainty. Nor can they by themselves resolve the underlying profitability challenges facing parts of the corporate sector."

"The direction is clear: the authorities want to strengthen the policy floor under the market. But the measures are more effective at limiting downside than generating sustained upside."

"Their strongest effect may therefore come through signalling: repeated intervention demonstrates policymakers' willingness to step in when markets come under significant pressure, strengthening investors' perception of a policy floor."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Commerzbank’s Norman Liebke expects the Central Bank of Brazil to pause its rate-cutting cycle at 13.75% amid fiscal and inflation concerns after Lula’s re-election. He notes unanchored inflation expectations but argues this is only a pause, with further cuts likely next year. Liebke sees scope for lower rates and anticipates the Brazilian Real will appreciate over the medium term.

BCB pause before further easing

"This evening at 10:30 pm Central European Time, the Central Bank of Brazil (BCB) will announce its interest-rate decision. A large majority of respondents to the Bloomberg survey expect the BCB to pause its rate-cutting cycle. According to the BCB’s weekly survey, analysts now expect only one further 25-basis-point rate cut by year-end, compared with three cuts previously. "

"This is mainly due to heightened fiscal concerns and inflation risks following President Lula’s surprise re-election. Inflation expectations through 2029 have risen and remain above the 3% inflation target."

"The BCB’s more cautious communication also points to a pause. At its previous meeting, it already stressed the need for a cautious approach to monetary policy given the high level of uncertainty and unanchored inflation expectations, while indicating that it would closely monitor further developments."

"Following the election, the BCB is therefore likely to wait and see how developments unfold, particularly regarding fiscal policy announcements and inflation expectations."

"Overall, the Brazilian real should benefit, which is why we expect the BRL to appreciate over the medium term and maintain our forecast."

"However, this is more likely to mark a pause than the end of the rate-cutting cycle. Further rate cuts are likely to follow by next year at the latest. With the policy rate at 13.75% and inflation at 4.6%, the BCB still has scope to lower rates further from their currently restrictive level, which would also narrow the interest-rate differential versus the USD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• The Canadian Dollar gains as US midterm results trigger fresh selling in the US Dollar.
• USD/CAD falls to seven-week lows, while Macklem’s hawkish remarks support the Loonie.
• US ADP employment beats expectations, with attention turning to the ISM Services PMI.

The Canadian Dollar (CAD) gains around 0.50% against the US Dollar (USD) on Wednesday, pushing USD/CAD to seven-week lows as the Greenback faces fresh selling pressure following the US midterm election results. At the time of writing, the pair trades around 1.3933.

The Dollar comes under pressure as Democrats’ sweep of the House and Senate leaves Congress and the White House controlled by opposing parties. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.30, its lowest level since September 30.

Meanwhile, Oil prices also eased on Tuesday as traders weighed whether a Democratic-controlled Congress could put greater pressure on Trump to end the war with Iran.

Economists at ING argue that the US midterm outcome marks a clear inflection point for policy-making in Washington, with a Democrat-controlled Congress now expected to “stifle President Trump’s domestic agenda in his final two years in power.”

In their view, the new balance of power implies that “spending and tax proposals, as with most domestic legislation, will likely be gridlocked,” effectively shutting the door on any fresh fiscal push. However, ING cautions that the absence of new stimulus does not equate to fiscal consolidation, stressing that “while we won’t see any further fiscal expansion, large fiscal deficits and deteriorating debt dynamics will continue.”

Even so, resilient US economic growth and a hawkish Federal Reserve (Fed) outlook could limit further US Dollar losses in the near term. Inflation risks from the Middle East energy shock continue to support expectations of further rate hikes.

On the data front, US private-sector employment rose by 86K in October, according to ADP, beating expectations of 69K. September’s gain was revised down to 86K from 90K.

Attention now turns to October’s ISM Services PMI, due later during American trading hours, for further clues on the health of the US economy.

On the Canadian side, hawkish remarks from Bank of Canada (BoC) Governor Tiff Macklem lend additional support to the Loonie. During his parliamentary appearance on Tuesday, Macklem said “further rate hikes may be needed,” but stressed that decisions would be taken “meeting by meeting” amid elevated uncertainty.