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Optimism that the US election would yield a blue wave currently appears misplaced. EUR/USD has retraced almost all of Tuesday’s gains although it is currently trading off its early morning low at 1.1602. All in all, Jane Foley Senior FX Strategist at Rabobank, sticks to her forecast of EUR/USD at 1.16 on a three-month view.

Key quotes

“President Trump has won Florida – a key battleground state and one which keeps him in the race while no result has been declared in several key states with pundits warning that it could be days before officials results are knows in some areas.”

“It can be argued that the language from both sides could be building towards contesting the election if the results are close. This too would likely erode risk appetite and support the greenback.” 

“While it appears that the Democrats are set to hold the House, the race is very tight for the Senate. Even if Biden wins the White House, a Republican held Senate could tie his hands at least until the mid-term elections in 2022. This suggests that the stalemate that characterised the fiscal stimulus talks in recent weeks could continue.”

“Bearing in mind the continued spread of COVID-19 in the US, this is likely worry investors. Given the risk of a double dip in economic activity in Europe, a dovish ECB and a delays over dispersing the EU’s Recovery Fund we see the shine as coming off the EUR. At this stage we retain our forecast of EUR/USD at 1.16 on a three-month view.”