EURUSD could edge lower to 1.1700 as US stimulus talks fail

Summary:
• The EURUSD declined in overnight trading as investors react to news on stimulus. A dovish statement by Christine Lagarde also contributed

The EURUSD pair declined to an intraday low of 1.1723 as the market reacted to the cancellation of stimulus talks in the United States and a dovish statement by Christine Lagarde.

The consensus among economists, including those at the Federal Reserve, is that the United States needs another stimulus package. As a result, congress and the White House have been holding a series of talks since July with the goal of launching another package.

Last week, the House of Representative passed a $2.2 trillion spending package that would include direct cheques to individuals and more funds to companies. At the same time, the White House announced a $1.5 trillion package that would have cheques to individuals and more than $25 billion to airlines. The Senate has also been struggling to pass its own bill.

In a statement yesterday, Donald Trump announced that the ongoing talks would be suspended until after the upcoming election. He cited the vast differences between Republicans and Democrats on the deal. This announcement led to the US dollar index to jump and US equities to slump.

The EURUSD also reacted to a relatively dovish statements by Christine Lagarde. In an interview with the Wall Street Journal (WSJ), the ECB president said that she was ready to cut interest rates and offer more stimulus to the European Union. She said that even as recent data has pointed to uneven recovery in the bloc. For example, while countries like Spain and France have continued to struggle.

EURUSD technical analysis

The EURUSD declined to an intraday low of 1.1723. On the three-hour chart, the price fell below the ascending trendline that is shown in pink. This line connects the lowest levels on 28^th September, and 2^nd and 5^th October. It also managed to move below the 25-day 15-day exponential moving average (EMA).

Therefore, I suspect that the pair will continue falling as bears target the next support at 1.1700. If it moves lower, it could test the next support at 1.1670. Another scenario is where the pair resumes the upward trend and moves back to the ascending channel.

EUR/USD technical chart