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  • EUR/USD bulls taking the reigns al the way into supply territory. 
  • Risk-on has helped the euro and weighed on the US dollar.
  • US elections, euro strength and US NFP will now be the main focus for the week.

EUR/USD has rallied, as forecasted in this week’s The Chart of the Week. The technical analysis is again detailed below in a fresh update.

The US dollar has fallen away and against a basket of currencies, (DXY), it is headed to a test of a critical support zone in the 93.40 area.

Fundamentally, the euro has been helped by a risk rally with a number of factors playing out. 

Firstly, it is month-end as well as quarter-end. US stocks have bounced back on portfolio reshuffling following a dismal month of September. 

Secondly, the markets are running on fumes amidst untold levels of stimulus expectations and the European Central Bank’s President, Christine Lagarde said the bank stands ready to act if needed. 

The combination of European and US stimulus is driving risk sentiment forward. 

The US dollar is also susceptible to the US elections with a track record that sees weakness into election day and then a recovery following the election. This too could be playing into the strength in EUR/USD. 

Meanwhile, EUR net longs strengthened in the latest CFTC data, reversing the bias of the previous week.

However, this could all come undone given the fears about a second wave of COVID-19 in Europe and the political fragility of the member bloc.

The markets are paying close attention to any additional comments from an ECB GC members that could well resurface is the euro continues on this trajectory for much longer.

EUR strength could ultimately be the euro’s worst enemy.

NFP in focus

Next up, we have the US Nonfarm Payrolls as a key data event at the end of the week. 

Analysts at TD Securities expect that Payrolls probably rose fairly strongly by pre-COVID standards, but with the pace slowing again, and the level still down around 11mn since February.

”We are assuming a 200k decline in government payrolls, due largely to weak education hiring at the start of the school year. More positively, the initial manufacturing survey data for September point to another solid ISM reading.”

Meanwhile, as we head into the en do the month, as October unfolds and once the September US labour market data is out of the way on Friday, market focus should intensify on the next US President’s economic policy mix, their trade agenda and diplomatic style.

The first round of three debates will get underway

Today, Donald Trump could face the most direct challenge of his presidency to his handling of the coronavirus pandemic, the economy and his personal conduct in his first debate against Democratic nominee Joe Biden.

Both will meet on Tuesday night in Cleveland for their first of three debates.

Fox News host Chris Wallace is the moderator where it will be televised live.

EUR/USD and DXY technical analysis

Moving down to the charts, as per The Chart of the Week: EUR/USD’s copy-book landing, still plenty of longs to unwind, the price is moving exactly according to the forecast:

As can be seen, the price has reached the target area. 

There is scope for a 61.8% Fibonacci retracement at this juncture, given that the DXY may still have some more room to go to the downside until 93.50’s within the 4th wave:

This is part of an ongoing analysis of the reverse head and shoulders pattern on the DXY: