EUR/USD firmed to around 1.1245 in early Asian trade, the strongest level in almost a month, as the US dollar softened after Democrats took control of both the Senate and the House in the US midterm elections. Markets also looked ahead to Germany’s Factory Orders for September, due later on Thursday, with the pair supported by shifting expectations for US fiscal policy following the change in Congress.
In the euro area, the flash estimate put October HICP inflation at 4.0%, up from 3.8% in September and the first reading at or above 4% since September 2023’s 4.3%. The ECB kept its key rate at 2.5% last month after a 25 bps rise in September, and markets were pricing nearly a 72.0% chance of a December hike, up from 71.8% before the inflation data. Other datapoints cited included core inflation of 2.5%, Services PMI at 51.4 and Composite PMI at 51.7, while one gauge put an ECB hawkishness score at 8.2 versus a historical 7.0; technically, resistance was flagged at 1.1262 and 1.1420, with support at 1.1195 and 1.1130, alongside RSI at 50.9.
Implications For The US Dollar
We recommend that derivative traders position for continued downside pressure on the US Dollar following the Democratic sweep of Congress. Historically, political gridlock or legislative shifts that limit executive fiscal spending tend to suppress Treasury yields and weigh heavily on the currency. With markets pricing in reduced government spending, we should look to exploit short-term bullish setups in dollar-denominated currency pairs.
Outlook For The Euro And EUR/USD Trading Strategy
On the European side, Eurozone inflation climbing to 4.0% strongly reinforces the case for monetary tightening at the European Central Bank’s December meeting. Futures markets currently price in nearly a 72% probability of a rate hike, providing solid fundamental support for the Euro. We expect widening yield differentials between Europe and the United States to keep upward pressure on the exchange rate over the coming weeks.
To capitalize on this momentum, traders can evaluate buying bull call spreads targeting the 100-day simple moving average near 1.1420. A decisive breakout above immediate technical resistance at 1.1262 would confirm that buyers have taken control of the short-term trend. Structuring bullish derivative trades around these technical levels allows us to participate in the upside while keeping risk explicitly capped.
We must still manage risk carefully because the broader medium-term trend remains constrained beneath major moving averages. Key support is located at the 20-day moving average near 1.1195, with lower support sitting near 1.1130. Implementing protective stops or buying downside put options below these support zones will safeguard positions if unexpected news triggers a reversal.
