EUR/USD: Trapped in a falling wedge ahead of the US midterm elections

• The EUR/USD has charted a falling wedge pattern on the daily chart.
• The US midterm elections are expected to produce a split congress.
• Falling wedge breakout likely on Democrat victory in both houses.

Trapped in a falling wedge pattern, the EUR/USD is currently trading at 1.1384.

The currency pair was solidly bid Friday and looked set to take out the upper edge of the wedge, before a better-than-expected non-farm payrolls number and the confusion surrounding the US-China trade deal put a bid under the greenback.

An overwhelming majority of opinion polls suggest that the Democrats are likely to win back the House, but the Republicans will likely keep the Senate, leading to a divided Congress. Major market moves are ruled out if the midterm elections do produce a split Congress as expected.

A Republican victory in both houses, however, could mean more fiscal stimulus, in which case a falling wedge breakout may remain a distant dream. On the other hand, a Democrat victory in both chambers may hurt the USD and could yield a falling wedge breakout in the EUR/USD (a bear-to-bull trend change). This is because Democrats want to raise the corporate tax rate to fund social programs.

The caution ahead of the midterm elections will likely keep the EUR/USD flatlined today.

Technical Levels