EUR/USD has been extending its gains, buoyed by optimism about a vaccine and the recovery but several data points and growing tension ahead of the Fed may limit gains, Yohay Elam, an analyst at FXStreet, reports.
Key quotes
“The latest upside driver has come from China – the world’s second-largest economy reported better than expected industrial output and retail sales figures for August. After a hesitant return, shoppers are now back in full force, with last month’s consumption exceeding that of the previous year.”
“Germany’s ZEW Economic Sentiment for September is set to show a minor dip in confidence, albeit from high levels. Investors in the old continent are happy with the recovery, yet rising COVID-19 cases in Europe are a cause for worry.”
“If ZEW allows for further euro gains, positioning ahead of Wednesday’s big event may curb them. The Federal Reserve is set to leave its policy unchanged in the last decision before the elections, yet it releases new forecasts which may impact markets. While the Fed announced a dovish long-term policy shift, it signaled no new policy change is coming. Cautious projections without hints of more stimulus may disappoint investors.”
“Coronavirus vaccine hopes are also underpinning equities and EUR/USD. A Chinese company hopes to be able to distribute doses already in November, joining the race in which Pfizer and AstraZeneca stand out. The latter resumed its Phase 3 trial after having to halt it following a participant’s illness.”
“Brexit remains a risk factor for the euro. The British parliament advanced a controversial bill that violates the Withdrawal Agreement detailing the UK’s departure from the EU. The legislation raises the chances of a hard Brexit, that may have an adverse impact on the eurozone. Contrary to last week’s moves, price action is limited to the pound this time, yet a rapid slide in sterling may drag the common currency down with it.”
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